Question

 

A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows:

   

Year	Cash Flow
0	–$	28,800
1		12,800
2		15,800
3		11,800

  

If the required return is 13 percent, what is the IRR for this project? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer 1

 

In order to calculate IRR in your calculator, you need to feed in the cashflows in your calculator with proper signs. A negative cashflow must be indicated negative to avoid wrong answers.

Steps for calculator:

1. Press SHIFT (Blue Arrow Key), then C ALL. This would clear the cashflow memory of calculator.
2. Number of periods per year (default is 12). For annual cash flows, P/YR should be set to 1; for monthly cash flows, use the default setting, 12. In our question, it is yearly cashflows. So we need to set P/YR = 1. To do this, input 1, pressing SHIFT (Orange Arrow Key), Pressing PMT P/YR button.
3. Now we are set to enter the cashflows. Press CF_j button. Enter first cashflow amount. In our question, it is -28,800. So, first enter 28800 and then press +/- key. This would make it -28800. Now press INPUT. Press SHIFT (Orange arrow key) and ?/N_j. Then enter a number/count (or frequency) for the cash flow count which is ‘1’ in our case.
4. Again press CF_j button. Enter the second cashflow amount, which is 12,800 in our case and count 1. Again press CF_j button. Enter the third cashflow amount, which is 15,800 in our case and count 1. Again press CF_j button. Enter the fourth cashflow amount, which is 11,800 in our case and count 1.
5. Once you have entered all cashflows, press SHIFT (Orange Arrow Key) and IRR/YR button.