Question

Same project as in Q3 from last lecture: Outflows of $100,000 today, $100,000 in one year, and $50,000 in two years. Annual inflows of $50,000 for 10 years starting three years from today (end of year 3). What is this project's IRR? Answer in percent, rounded to two decimal places. ​[Hint: "Draw" the timeline on Excel as shown in the video and the textbook. Then use the IRR function. Make sure you increase decimal places.]

Answer 1

Ans 11.67%

Year	Project Cash Flows (i)	DF@ 12%	DF@ 12% (ii)	PV of Project ( (i) * (ii) )	DF@ 2% (iii)	PV of Project ( (i) * (iii) )
0	-100000	1	1	(1,00,000.00)	1	(1,00,000.00)
1	-100000	1/((1+12%)^1)	0.892857	(89,285.71)	0.980	(98,039.22)
2	-50000	1/((1+12%)^2)	0.797194	(39,859.69)	0.961	(48,058.44)
3	50000	1/((1+12%)^3)	0.711780	35,589.01	0.942	47,116.12
4	50000	1/((1+12%)^4)	0.635518	31,775.90	0.924	46,192.27
5	50000	1/((1+12%)^5)	0.567427	28,371.34	0.906	45,286.54
6	50000	1/((1+12%)^6)	0.506631	25,331.56	0.888	44,398.57
7	50000	1/((1+12%)^7)	0.452349	22,617.46	0.871	43,528.01
8	50000	1/((1+12%)^8)	0.403883	20,194.16	0.853	42,674.52
9	50000	1/((1+12%)^9)	0.360610	18,030.50	0.837	41,837.76
10	50000	1/((1+12%)^10)	0.321973	16,098.66	0.820	41,017.41
11	50000	1/((1+12%)^11)	0.287476	14,373.81	0.804	40,213.15
12	50000	1/((1+12%)^12)	0.256675	12,833.75	0.788	39,424.66
	11.67%	NPV	(3,929.25)	NPV	1,85,591.36
	IRR =	Ra + NPVa / (NPVa - NPVb) * (Rb - Ra)
		2% + 185591.36 / (185591.36 + 3929.25 )*10%
		11.67%