Question

Simms Corp. is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's projected IRR can be less than the WACC or negative, in both cases it will be rejected.

Year	0	1	2	3
Cash flows	-$1,025	$425	$425	$425

Answer 1

	CASH FLOW FROM THE PROJECT
	Years	Cash Flows
	0	-$1,025
	1	$425
	2	$425
	3	$425
	Total	$250
	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 @ 11% discounting rate
	Years	Cash Flows	PVF @11%	Present Value
	0	-$1,025	1	-$1,025.00
	1	$425	0.9009	$382.88
	2	$425	0.8116	$344.94
	3	$425	0.7312	$310.76
		Net Present Value =		$13.58
	With PVF of 11% we are getting positive =			$13.58
	Secondly we calculate randomly present value @ 12 % discounting rate
	Years	Cash Flows	PVF @ 12%	Present Value
	0	-$1,025	1	-$1,025.00
	1	$425	0.8929	$379.46
	2	$425	0.7972	$338.81
	3	$425	0.7118	$302.51
		Net Present Value =		-$4.22
	With PVF of 12 % we are getting negative =			-4.22
	In the given case the pv with 11% is coming to postive means the present value is more
	then 11 % but with 12 % Present value cash flow become negative so the prese-nt value
	is between 11% and 12 %
	So the differecne in both % net present value is =			$13.58	-	-$4.22
	Total is become =			$17.80
	So , the difference % =			$13.58	"/"By	$17.80
	So , the difference % =			0.76
	So, the IRR =			11.76%
	Answer 1 = IRR =		11.76%