Question

Find IRR for following cash flows:

                                    0_____1_____2_____3_____4

                                    ($100) $10       $10     $10     $110

a) use calculator, make sure that you know the procedure.

p/yr=____, N=____, PMT=_____, FV=_____, PV=_____, IRR=____% per period.

b) use spreadsheet, make sure that you know the procedure. Show spreadsheet printout by using Excel

c) use intuition: if initial cash flow is changed to (90) the IRR will be higher because _________________________________

Hint: Consider the impact of a higher discount rate on the PV of a given set of cash flows.

Answer 1

	Years	Cash Flows
	0	-$100
	1	$10
	2	$10
	3	$10
	4	$110
	Total	$40
	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 @ 9% discounting rate
	Years	Cash Flows	PVF @9%	Present Value
	0	-$100	1	-$100.00
	1	$10	0.9174	$9.17
	2	$10	0.8417	$8.42
	3	$10	0.7722	$7.72
	4	$110	0.7084	$77.93
		Net Present Value =		$3.24
	With PVF of 9% we are getting positive =			$3.24
	So now we will try to calulate with 10%
	Secondly we calculate randomly present value @ 10 % discounting rate
	Years	Cash Flows	PVF @ 10%	Present Value
	0	-$100	1	-$100.00
	1	$10	0.9091	$9.09
	2	$10	0.8264	$8.26
	3	$10	0.7513	$7.51
	4	$110	0.6830	$75.13
		Net Present Value =		$0.00
	With PVF of 10 % we are getting Zero it means the IRR is the 10%
	Answer = IRR = 10%
	Answer = C
	If the intial cash flow is changed to (90) it means there is cash will increase as below
	Years	Cash Flows
	0	-$90
	1	$10
	2	$10
	3	$10
	4	$110
	Total	$50
	It mens the IT increase the IRR of the project and it is because there is
	more cash inflow from the project due to less outflow at initial of project