Question

Consider the following cash flows:

C0 / C1/ C2 /C3 /C4

? $ 27 / + $ 24 / + $ 24 / + $ 24 / ? $ 46

a. Which two of the following rates are the IRRs of this project? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)

2.5%

2.9%

14.3%

33.9%

40.0%

Answer 1

	If we discount Cashflows @ IRR NPV = 0
	So if NPV is 0 for a given IRR ;it is the IRR of project
(i)	Year	CF	PV Factor @ r	PV of cash flows
	0	-27	1	-27
	1	24	0.97561	23.41463
	2	24	0.951814	22.84355
	3	24	0.928599	22.28639
	4	46	0.905951	41.67373
		NPV =		83.2183
		(NO)
(ii)	Year	CF	PV Factor @ r	PV of cash flows
	0	-27	1	-27
	1	24	0.971817	23.32362
	2	24	0.944429	22.66629
	3	24	0.917812	22.0275
	4	46	0.891946	41.02951
		NPV =		82.04691
		(NO)
(iii)	Year	CF	PV Factor @ r	PV of cash flows
	0	-27	1	-27
	1	24	0.874891	20.99738
	2	24	0.765434	18.37041
	3	24	0.669671	16.0721
	4	46	0.585889	26.95088
		NPV =		55.39076
		(NO)
(iv)	Year	CF	PV Factor @ r	PV of cash flows
	0	-27	1	-27
	1	24	0.746826	17.92382
	2	24	0.557749	13.38598
	3	24	0.416541	9.996996
	4	46	0.311084	14.30986
		NPV =		28.61666
		(NO)
(v)	Year	CF	PV Factor @ r	PV of cash flows
	0	-27	1	-27
	1	24	0.714286	17.14286
	2	24	0.510204	12.2449
	3	24	0.364431	8.746356
	4	46	0.260308	11.97418
		NPV =		23.10829
		(NO)
	Lets Make NPV profile and find out the IRR of This project.
	Irr	NPV
	0%	91.00
	10%	64.10
	20%	45.74
	30%	32.69
	40%	23.11
	50%	15.86
	60%	10.25
	70%	5.81
	80%	2.24
	90%	-0.69
	100%	-3.13
	120%	-6.91
	140%	-9.71
	160%	-11.85
	There is only 1 IRR of the project it is around 85%