Question

Filter Corp. has a project available with the following cash flows:

Year Cash Flow

0 −$13,700   

1 6,600   

2 7,900   

3 4,100   

4 3,700   

What is the project's IRR?

Answer 1

IRR: internal rate of return is a break even rate at which point NPV of project becomes 0, it can be calculated by using Excel "=IRR(Values 0 to 4)" function as can be seen in image, there are other manual methods also present that is trial and error method that solely depend on ones perception of two rates that is one below the IRR and one above the IRR and by interpolation a middle way IRR is calculated that is IRR = R1 + [(NPV1 x (R2-R1))/(NPV1-NPV2)].

Here R1 is lower rate and R2 is above rate, NPV1 and 2 are their present values calculated respectively.

Same way it can be calculated by financial calculator by setting Values of CF0 to CF4, and pressing CPT+IRR