A four year project that has an initial cost of $60,000. The future cash inflows are...

A four year project that has an initial cost of $60,000. The future cash inflows are $40,000 00,$30,000,$20,000, and $10,000, respectively Given this informationwhat what is the IRR for?

Expert Solution

Year	Cash Flow	PV Factor @ 31%	Present Value	PV Factor @ 32%	Present Value
0	$ -60,000.00	1	$ -60,000.00	1	$ -60,000.00
1	$ 40,000.00	0.76336	$ 30,534.35	0.75758	$ 30,303.03
2	$ 30,000.00	0.58272	$ 17,481.50	0.57392	$ 17,217.63
3	$ 20,000.00	0.44482	$ 8,896.44	0.43479	$ 8,695.77
4	$ 10,000.00	0.33956	$ 3,395.59	0.32939	$ 3,293.85
			$ 307.87		$ -489.71

Unsing Hit and Trial method,

IRR = 31% + [$307.87 / ($307.87 + $489.71)]

= 31% + ($307.87 / $797.59)

= 31% + 0.386%

= 31.386%

(Using IRR function in excel, the IRR is 31.383%)

If you have any doubt or require any explanation, feel free to ask in comment section.

ekkarill92 answered 2 years ago

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