Question

Project L requires an initial outlay at t = 0 of $48,273, its expected cash inflows are $10,000 per year for 8 years, and its WACC is 9%. What is the project's IRR? Round your answer to two decimal places.

Answer 1

IRR is the Rate at which PV of cash Inflows are equal to PV of Cash Outflows.

Year	CF	PVF @12%	Disc CF	PVF @13%	Disc CF
0	$ -48,273.00	1.0000	$ -48,273.00	1.0000	$ -48,273.00
1	$ 10,000.00	0.8929	$    8,928.57	0.8850	$    8,849.56
2	$ 10,000.00	0.7972	$    7,971.94	0.7831	$    7,831.47
3	$ 10,000.00	0.7118	$    7,117.80	0.6931	$    6,930.50
4	$ 10,000.00	0.6355	$    6,355.18	0.6133	$    6,133.19
5	$ 10,000.00	0.5674	$    5,674.27	0.5428	$    5,427.60
6	$ 10,000.00	0.5066	$    5,066.31	0.4803	$    4,803.19
7	$ 10,000.00	0.4523	$    4,523.49	0.4251	$    4,250.61
8	$ 10,000.00	0.4039	$    4,038.83	0.3762	$    3,761.60
NPV			$    1,403.40		$      -285.30

IRR = Rate at which least +ve NPV + [ NPV at that Rate / Change in NPV due to 1% inc in DIsc Rate ] * 1%

= 12% + [ 1403.40 / 1688.69 ] * 1%

= 12% + 0.83%

= 12.83%