You are considering a project that costs $17,000 today and will generate cash flows of $7,250...

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%

Expert Solution

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%

jeff jeffy answered 3 years ago

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