Question

​(IRR calculation​) Determine the IRR on the following​ projects:

a. An initial outlay of ​$9000 resulting in a single free cash flow of ​$17395 after 6 years

b. An initial outlay of ​$9000 resulting in a single free cash flow of ​$52325 after 12 years

c. An initial outlay of ​$9000 resulting in a single free cash flow of ​$114485 after 20 years

d. An initial outlay of ​$9000 resulting in a single free cash flow of ​$13607 after 5 years

Answer 1

a)

IRR = (Future value / initial outlay)^1/n - 1

IRR = (17395 / 9000)^1/6 - 1

IRR = (1.932778)^1/6 - 1

IRR = 1.1161 - 1

IRR = 0.1161 or 11.61%

b)

IRR = (Future value / initial outlay)^1/n - 1

IRR = (52325 / 9000)^1/12 - 1

IRR = (5.813889)^1/12 - 1

IRR = 1.1580 - 1

IRR = 0.1580 or 15.80%

c)

IRR = (Future value / initial outlay)^1/n - 1

IRR = (114485 / 9000)^1/20 - 1

IRR = (12.720556)^1/20 - 1

IRR = 1.1356 - 1

IRR = 0.1356 or 13.56%

d)

IRR = (Future value / initial outlay)^1/n - 1

IRR = (13607 / 9000)^1/5 - 1

IRR = (1.511889)^1/5 - 1

IRR = 1.0862 - 1

IRR = 0.0862 or 8.62%