Question

Compute the IRR on the following cash flow streams:

a. An initial investment of $22,482 followed by a single cash flow of $32,290 in year 6. (Round answer to 2 decimal places, e.g. 5.25%.) IRR % ____

b. An initial investment of $1,229,844 followed by a single cash flow of $1,864,300 in year 4. (Round answer to 2 decimal places, e.g. 5.25%.) IRR % _____

c. An initial investment of $1,749,912 followed by cash flows of $1,585,900 and $1,108,200 in years 2 and 4, respectively. (Round answer to 2 decimal places, e.g. 5.25%.) IRR % _____

Answer 1

a.Internal rate of return can be calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$22,482. The initial cash flow is indicated by a negative sign since it is a cash outflow.  
• Cash flow for each of the fifteen years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of the project is 6.22%.

b.Internal rate of return can be calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$1,229,844. The initial cash flow is indicated by a negative sign since it is a cash outflow.  
• Cash flow for each of the fifteen years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of the project is 10.96%.

c.Internal rate of return can be calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$1,749,912. The initial cash flow is indicated by a negative sign since it is a cash outflow.  
• Cash flow for each of the fifteen years should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of the project is 17%.