Question

Project L requires an initial outlay at t = 0 of $59,495, its expected cash inflows are $9,000 per year for 11 years, and its WACC is 10%. What is the project's IRR? Round your answer to two decimal places.

Answer 1

	CF	PVAF	PVAF x CF
Year 0	-59495	1	-59495
Year 1-11	9000	6.495	58455	(From annuity table, @ 10% for 11 years)
NPV			-1040
IRR is the rate at which NPV = 0
So, 9000 x PVAF (@10% for 11 year) = 59495
That is PVAF = 59495/9000
That is =	6.610555556
From annuity table, we get approximately as 6.805 @ 9%
NPV at 9%
	9000x6.805-59495=	1750
So NPV at 10% = -1040 and NPV at 9% = 1750, so the IRR is in between this
To calculate correct IRR use this equation
9% + (NPV at 9% / NPV at 9% - NPV at 10%) x (10- 9)
That comes to 9.62%
So the IRR = 9.62%