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Project L costs $67,539.42, its expected cash inflows are $14,000 per year for 10 years, and...

Project L costs $67,539.42, its expected cash inflows are $14,000 per year for 10 years, and its WACC is 9%. What is the project's IRR? Round your answer to two decimal places.

  %

Solutions

Expert Solution

9% 12% 15% 16% 17%
Period Cash Flow Discountig Factor
[1/(1.09^period)]		 PV of cash flows
(cash flow*discounting factor)		 Discountig Factor
[1/(1.12^period)]		 PV of cash flows
(cash flow*discounting factor)		 Discountig Factor
[1/(1.15^period)]		 PV of cash flows
(cash flow*discounting factor)		 Discountig Factor
[1/(1.16^period)]		 PV of cash flows
(cash flow*discounting factor)		 Discountig Factor
[1/(1.17^period)]		 PV of cash flows
(cash flow*discounting factor)
0 -67539.42 1 -67539.42 1 -67539.42 1 -67539.42 1 -67539.42 1 -67539.42
1 14000 0.9174312 12844.0367 0.8928571 12500 0.8695652 12173.91304 0.862069 12068.966 0.8547009 11965.812
2 14000 0.84168 11783.5199 0.7971939 11160.71429 0.7561437 10586.01134 0.7431629 10404.281 0.7305136 10227.19
3 14000 0.7721835 10810.5687 0.7117802 9964.923469 0.6575162 9205.227254 0.6406577 8969.2074 0.6243706 8741.1878
4 14000 0.7084252 9917.95295 0.6355181 8897.253098 0.5717532 8004.545438 0.5522911 7732.0754 0.53365 7471.1007
5 14000 0.6499314 9099.03941 0.5674269 7943.97598 0.4971767 6960.474294 0.476113 6665.5822 0.4561112 6385.5561
6 14000 0.5962673 8347.74258 0.5066311 7092.835696 0.4323276 6052.586343 0.4104423 5746.1916 0.3898386 5457.7403
7 14000 0.5470342 7658.47943 0.4523492 6332.889015 0.375937 5263.118559 0.3538295 4953.6134 0.3331954 4664.7353
8 14000 0.5018663 7026.12792 0.4038832 5654.365192 0.3269018 4576.624834 0.3050255 4270.3564 0.2847824 3986.9532
9 14000 0.4604278 6445.98891 0.36061 5048.54035 0.2842624 3979.673769 0.262953 3681.3417 0.2434037 3407.6523
10 14000 0.4224108 5913.7513 0.3219732 4507.625312 0.2471847 3460.585886 0.2266836 3173.5704 0.2080374 2912.5234
NPV = 22307.7878 NPV = 11563.7024 NPV = 2723.340762 NPV = 125.7647 NPV = -2318.969

IRR is the rate of return at which NPV=0

Here, NPV@16% is positive and @17% is negative.

Therefore, IRR is between 16% and 17%

IRR = Rate at which positive NPV + [Positive NPV/(Positive NPV-Negative NPV)]

= 16% + [125.7647/(125.7647-(-2318.969)]

= 16% + [125.7647/2444.7337]

= 16% + 0.05144% = 16.05%

jeff jeffy answered 2 years ago
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