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In: Accounting

you are evaluating an investment that requires $2,000 upfront and pays $500 at the end of...

you are evaluating an investment that requires $2,000 upfront and pays $500 at the end of each of the first 2 years and an additional lump sum of $1000 at the end of year 2. What would happen to the IRR if the annual payment at the end of the first year go down from $500 to $300 and the annual payment at the end of the second year stays at $500?

Solutions

Expert Solution

You are evaluating an investment that requires $2,000 upfront and

pays $500 at the end of each of the first 2 years and

an additional lump sum of $1000 at the end of year 2

(For Year 2 = 500 + 1000 = 1500)
Year Cash flow
Year 0 -2000
Year 1 500
Year 2 1500

What would happen to the IRR if the annual payment

at the end of the first year go down from $500 to $300 and

the annual payment at the end of the second year stays at $500?
Year Cash flow
Year 0 -2000
Year 1 300
Year 2 1500
Answer 2
Year Cash flow
Year 0 -2000
Year 1 300
Year 2 1500
IRR -5.57%

ekkarill92 answered 2 weeks ago
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