Question

In: Finance

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%

Solutions

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%

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