Question

You have 3 projects with the following cash flows:

Year: 0 1 2 3 4

Project 1: -$ 148 $ 20 $ 42 $ 60 $ 81

Project 2: -826 0 0 6,994 -6,510

Project 3: 21 40 58 78 -44

a. For which of these projects is the IRR rule reliable?

b. Estimate the IRR for each project (to the nearest 1 %). c. What is the NPV of each project if the cost of capital is 5 %? 20 %? 50 %?

Answer #1

1.

Project 1 and Project 3

2.

=IRR({-148;20;42;60;81})=11.3458681971689%

3.

=IRR({-826;0;0;6994;-6510})=11.0236937066464%, 44.334%

4.

=IRR({21;40;58;78;-44})=-186.97%

5.

=NPV(5%,{-148;20;42;60;81})*(1+5%)=27.6120135128881

6.

=NPV(5%,{-826;0;0;6994;-6510})*(1+5%)=-140.112946766008

7.

=NPV(5%,{21;40;58;78;-44})*(1+5%)=142.883371640417

8.

=NPV(20%,{-148;20;42;60;81})*(1+20%)=-28.3819444444445

9.

=NPV(20%,{-826;0;0;6994;-6510})*(1+20%)=81.9861111111113

10.

=NPV(20%,{21;40;58;78;-44})*(1+20%)=118.530864197531

11.

=NPV(50%,{-148;20;42;60;81})*(1+50%)=-82.2222222222222

12.

=NPV(50%,{-826;0;0;6994;-6510})*(1+50%)=-39.6296296296298

13.

=NPV(50%,{21;40;58;78;-44})*(1+50%)=87.8641975308642

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Year 2
Year 3
Year 4
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$ 21$21
$ 13$13
B
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$ 50$50
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