Question

a project with an initial cost of $73,600 is expected to generate annual cash flows of $16,360 for the next 8 years. what is the projects internal rate of retu

Answer 1

	CASH FLOW FROM THE PROJECT
		Years	Cash Flows
		0	-$73,600
		1	$16,360
		2	$16,360
		3	$16,360
		4	$16,360
		5	$16,360
		6	$16,360
		7	$16,360
		8	$16,360
		Total
		IRR : IRR Means with a particular Percentage rate , At that point the present value become the zero
		CALCULATION OF THE IRR OF THE PROJECT
		First we calculate randomly present value with @ 14% discounting rate
		Years	Cash Flows	PVF @14%	Present Value
		0	-$73,600	1	-$73,600.00
		1	$16,360	0.8772	$14,350.88
		2	$16,360	0.7695	$12,588.49
		3	$16,360	0.6750	$11,042.53
		4	$16,360	0.5921	$9,686.43
		5	$16,360	0.5194	$8,496.87
		6	$16,360	0.4556	$7,453.40
		7	$16,360	0.3996	$6,538.07
		8	$16,360	0.3506	$5,735.15
			Net Present Value =		$2,291.81
		With PVF of 14 % we are getting positive =			$2,291.81
		Secondly we calculate randomly present value @ 15 % discounting rate
		Years	Cash Flows	PVF @ 15%	Present Value
		0	-$73,600	1.0000	-$73,600
		1	$16,360	0.8696	$14,226.09
		2	$16,360	0.7561	$12,370.51
		3	$16,360	0.6575	$10,756.97
		4	$16,360	0.5718	$9,353.88
		5	$16,360	0.4972	$8,133.81
		6	$16,360	0.4323	$7,072.88
		7	$16,360	0.3759	$6,150.33
		8	$16,360	0.3269	$5,348.11
			Net Present Value =		-$187.42
		With PVF of 15 % we are getting negative =			-187.42
		In the given case the pv with 14% is coming to postive means the present value is more
		then 14 % but with 15 % Present value cash flow become negative so the prese-nt value
		is between 14% and 15 %
		So the differecne in both % NPV =			$2,291.81	-	-$187.42
		Total difference of NPV =			$2,479.23
		So , the difference % =			$2,291.81	"/"By	$2,479.23
		So , the difference % =			0.92
		So, the IRR =			14.92%
		Answer 1 = IRR =		14.92%