Question
2. The following cash-flow pattern has two IRRs. Graph the NPV of these cash flows as...
2. The following cash-flow pattern has two IRRs. Graph the NPV of these cash flows as a function of the discount rate. Use a data table to record your results for interest rates between 0% and 72% (see worksheet for template). Then use the IRR function to calculate these two IRRs.
|
Year |
Cash flow |
|
0 |
-500 |
|
1 |
600 |
|
2 |
300 |
|
3 |
300 |
|
4 |
200 |
|
5 |
-1,000 |
|
6 |
600 |
|
7 |
700 |
|
8 |
-1500 |
| Discount rate | 20% | |||||
| NPV | Data table | |||||
| 0.00 | ||||||
| Year | Cash flow | 0% | ||||
| 0 | -500 | 4% | ||||
| 1 | 600 | 8% | ||||
| 2 | 300 | 12% | ||||
| 3 | 300 | 16% | ||||
| 4 | 200 | 20% | ||||
| 5 | -1,000 | 24% | ||||
| 6 | 600 | 28% | ||||
| 7 | 700 | 32% | ||||
| 8 | -1500 | 36% | ||||
| 40% | ||||||
| 44% | ||||||
| 48% | ||||||
| IRR1 | 52% | |||||
| IRR2 | 56% | |||||
| 60% | ||||||
| 64% | ||||||
| 68% | ||||||
| 72% | ||||||
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