Question

Determine the internal rate of return for a project that costs -$149,500 and would yield after-tax cash flows of $23,000 the first year, $25,000 the second year, $28,000 the third year, $30,000 the fourth year, $34,000 the fifth year, and $40,000 the sixth year.

Question 28 options:

	4.79%
	4.29%
	5.08%
	4.12%
	5.35%

Answer 1

Ans 5.08%

Year	Project Cash Flows (i)	DF@ 5%	DF@ 5% (ii)	PV of Project ( (i) * (ii) )	DF@ 10% (iii)	PV of Project ( (i) * (iii) )
0	-149500	1	1	(1,49,500.00)	1	(1,49,500.00)
1	23000	1/((1+5%)^1)	0.952	21,904.76	0.909	20,909.09
2	25000	1/((1+5%)^2)	0.907	22,675.74	0.826	20,661.16
3	28000	1/((1+5%)^3)	0.864	24,187.45	0.751	21,036.81
4	30000	1/((1+5%)^4)	0.823	24,681.07	0.683	20,490.40
5	34000	1/((1+5%)^5)	0.784	26,639.89	0.621	21,111.32
6	40000	1/((1+5%)^6)	0.746	29,848.62	0.564	22,578.96
		NPV		437.53	NPV	(22,712.25)
	IRR =	Ra + NPVa / (NPVa - NPVb) * (Rb - Ra)
		5% + 437.53 / (437.53 + 22712.25)*5%
		5.08%