Question

Mahmut Tutam is considering making an investment of $80,000 in a venture that is projected to yield annual returns over a 15-year period with the following cash flow profile:

Year	Cash Flow		Year	Cash Flow		Year	Cash Flow
1	$8,000		6	$13,000		11	$13,000(0.9)5
2	$9,000		7	$13,000(0.9)		12	$13,000(0.9)6
3	$10,000		8	$13,000(0.9)2		13	$13,000(0.9)7
4	$11,000		9	$13,000(0.9)3		14	$13,000(0.9)8
5	$12,000		10	$13,000(0.9)4		15	$13,000(0.9)9

1.Using an internal rate of return analysis, should he make the investment if his time value of money is 7%?

IRR = ?%

Should the investment be made yes or no ?

2.Using an internal rate of return analysis, should he make the investment if his time value of money is 9%?

IRR = ?%

Should the investment be made yes or no ?

3. Using an internal rate of return analysis, for what time value of money value will he be indifferent in making versus not making the investment?

?%

Answer 1

IRR AT NO TIME VALUE = 8.116%

IRR @ 7% = 4.0514%

IRR @ 9% = 2.1422%