Question

Kiley Electronics is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's IRR can be less than the cost of capital (and even negative), in which case it will be rejected.

Year	0	1	2	3
Cash flows	−$1,100	$450	$470	$490

Answer 1

IRR is the rate at which NPV =0
IRR	13.31%
Year	0	1	2	3
Cash flow stream	-1100.000	450.000	470.000	490.000
Discounting factor	1.000	1.133	1.284	1.455
Discounted cash flows project	-1100.000	397.136	366.060	336.804
NPV = Sum of discounted cash flows
NPV Project =	0.000
Where
Discounting factor =	(1 + discount rate)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
IRR=	13.31%