Question
In: Finance
If you invest 3000 today and expect to profit $200 a year for 10 years what...
If you invest 3000 today and expect to profit $200 a year for 10 years what id the IRR on the investment?
Solutions
Expert Solution
| Project | |||||||||||
| IRR is the rate at which NPV =0 | |||||||||||
| IRR | -0.067657639 | ||||||||||
| Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
| Cash flow stream | -3000 | 200 | 200 | 200 | 200 | 200 | 200 | 200 | 200 | 200 | 200 |
| Discounting factor | 1 | 0.932342 | 0.869262 | 0.81045 | 0.7556169 | 0.704494 | 0.656829 | 0.61239 | 0.570957 | 0.532327 | 0.496311 |
| Discounted cash flows project | -3000 | 214.5135 | 230.0802 | 246.7765 | 264.68439 | 283.8918 | 304.4931 | 326.5894 | 350.2891 | 375.7087 | 402.9729 |
| NPV = Sum of discounted cash flows | |||||||||||
| NPV Project = | -0.00043689 | ||||||||||
| Where | |||||||||||
| Discounting factor = | (1 + IRR)^(Corresponding period in years) | ||||||||||
| Discounted Cashflow= | Cash flow stream/discounting factor | ||||||||||
| IRR= | -6.77% | ||||||||||
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