In: Finance
You are considering a project that costs $17,000 today and will generate cash flows of $7,250 per year for 3 years. Calculate the IRR for this project.
Question 2 options:
13.00% |
|
13.41% |
|
14.02% |
|
15.01% |
Ans 13.41%
Year | Project Cash Flows (i) | DF@ 8% | DF@ 8% (ii) | PV of Project ( (i) * (ii) ) | DF@ 18% (iii) | PV of Project ( (i) * (iii) ) |
0 | -17000 | 1 | 1 | (17,000.00) | 1 | (17,000.00) |
1 | 7250 | 1/((1+8%)^1) | 0.925926 | 6,712.96 | 0.847 | 6,144.07 |
2 | 7250 | 1/((1+8%)^2) | 0.857339 | 6,215.71 | 0.718 | 5,206.84 |
3 | 7250 | 1/((1+8%)^3) | 0.793832 | 5,755.28 | 0.609 | 4,412.57 |
NPV | 1,683.95 | NPV | (1,236.52) | |||
IRR = | Ra + NPVa / (NPVa - NPVb) * (Rb - Ra) | |||||
8% + 1683.95 / (1683.95 + 1236.52)*10% | ||||||
13.41% |