Question

What is the true IRR of the project with the following cash flows if the firm...

What is the true IRR of the project with the following cash flows if the firm would be able to reinvest the cash inflows at a rate of return equal to 10%?

Year 0: -$400

Year 1: $100

Year 2: $200

Year 3: $300

*I am not using Excel to solve. I am using the HP 10bll to solve. Please explain.

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Homework Answers

Answer #1

By IRR, one generally means IRR and not MIRR
Howver, this looks like it is asking for MIRR

Case 1: If it is asking for IRR
Using financial calculator
press CF 2nd CE/C
press CF
-400
Enter
down arrow,
100
Enter
down arrow (twice),
200
Enter
down arrow (twice),
300
Enter
down arrow (twice).

press IRR
press down arrow
press CPT
=19.4377%

Case 2: If it is asking for MIRR
PV=-400
N=3
PMT=0
FV=100*1.1^2+200*1.1+300 (you have to compute future value at t=3 of all cash inflows using formula =present value*(1+rate)^t)
CPT I/Y=17.0216%

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