Question

What is the Internal Rate of Return on an investment with the following cash flows? Year...

What is the Internal Rate of Return on an investment with the following cash flows?

Year Cash Flow...

0 -$761,125

1 $330,500

2 $454,700

3 $161,200

Answers:

a. 12.93 percent

b. 9.42 percent

c. 11.88 percent

d. 14.71 percent

e. 10.96 percent

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Homework Answers

Answer #1

Ans) a. 12.93 percent

Internal rate of return is the rate at which NPV is 0

Assume r = 12% , then NPV =

Year Cash flow PVIF @ 12% PV
1 330500 0.8929 295089.29
2 454700 0.7972 362484.06
3 161200 0.7118 114738.98
Total of PV of cash inflow 772312.32
Less : Initial cash outflow 761125
NPV 11187.32

Assume r = 13% , then NPV =

Year Cash flow PVIF @ 13% PV
1 330500 0.8850 292477.88
2 454700 0.7831 356096.80
3 161200 0.6931 111719.69
Total of PV of cash inflow 760294.36
Less : Initial cash outflow 761125
NPV -830.64

Using interpolation we can find IRR

r NPV
12% 11187.32
13% -830.64
1% 12017.96
? 11187.32

=11187.32 / 12017.96

= 0.93%

Thus IRR = 12%+0.93% = 12.93%

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