In: Finance
Bruges Industries is considering a project with an initial cost of $214,758 and with the following incremental after-tax cash inflows: Year 1, $65,079; Year 2, $79,532; and Year 3, $108,741. What is the internal rate of return (IRR) of this project?
Ans 8.00%
Year | Project Cash Flows (i) | DF@ 5% | DF@ 5% (ii) | PV of Project ( (i) * (ii) ) | DF@ 10% (iii) | PV of Project ( (i) * (iii) ) |
0 | -214758 | 1 | 1 | (2,14,758.00) | 1 | (2,14,758.00) |
1 | 65079 | 1/((1+5%)^1) | 0.952381 | 61,980.00 | 0.909 | 59,162.73 |
2 | 79532 | 1/((1+5%)^2) | 0.907029 | 72,137.87 | 0.826 | 65,728.93 |
3 | 108741 | 1/((1+5%)^3) | 0.863838 | 93,934.56 | 0.751 | 81,698.72 |
NPV | 13,294.43 | NPV | (8,167.62) | |||
IRR = | Ra + NPVa / (NPVa - NPVb) * (Rb - Ra) | |||||
5% + 13294.43/ (13294.43 + 8167.62)*5% | ||||||
8.00% | ||||||