Question

19) A firm is considering a project that is expected to generate annual cash flows of $24,000 for 15 years. The project requires an initial investment of $247,103.44. The cost of capital is 8.13%. What is the IRR of the project?

Answer 1

Calculation of IRR:
Particulars	Time	PVf @8.13%	Amount	PV
Cash Outflows	-	1.00	-2,47,103.44	-2,47,103.44
PV of Cash outflows = PVCO				-2,47,103.44
Cash inflows	1.00	0.9248	24,000.00	22,195.51
Cash inflows	2.00	0.8553	24,000.00	20,526.69
Cash inflows	3.00	0.7910	24,000.00	18,983.34
Cash inflows	4.00	0.7315	24,000.00	17,556.03
Cash inflows	5.00	0.6765	24,000.00	16,236.04
Cash inflows	6.00	0.6256	24,000.00	15,015.30
Cash inflows	7.00	0.5786	24,000.00	13,886.34
Cash inflows	8.00	0.5351	24,000.00	12,842.26
Cash inflows	9.00	0.4949	24,000.00	11,876.69
Cash inflows	10.00	0.4577	24,000.00	10,983.71
Cash inflows	11.00	0.4232	24,000.00	10,157.88
Cash inflows	12.00	0.3914	24,000.00	9,394.14
Cash inflows	13.00	0.3620	24,000.00	8,687.82
Cash inflows	14.00	0.3348	24,000.00	8,034.60
Cash inflows	15.00	0.3096	24,000.00	7,430.50
PV of Cash Inflows =PVCI				2,03,806.85
NPV= PVCI - PVCO				-43,296.59
Statement showing NPV
Particulars	Time	PVf @5%	Amount	PV
Cash Outflows	-	1.00	-2,47,103.44	-2,47,103.44
PV of Cash outflows = PVCO				-2,47,103.44
Cash inflows	1.00	0.9524	24,000.00	22,857.14
Cash inflows	2.00	0.9070	24,000.00	21,768.71
Cash inflows	3.00	0.8638	24,000.00	20,732.10
Cash inflows	4.00	0.8227	24,000.00	19,744.86
Cash inflows	5.00	0.7835	24,000.00	18,804.63
Cash inflows	6.00	0.7462	24,000.00	17,909.17
Cash inflows	7.00	0.7107	24,000.00	17,056.35
Cash inflows	8.00	0.6768	24,000.00	16,244.14
Cash inflows	9.00	0.6446	24,000.00	15,470.61
Cash inflows	10.00	0.6139	24,000.00	14,733.92
Cash inflows	11.00	0.5847	24,000.00	14,032.30
Cash inflows	12.00	0.5568	24,000.00	13,364.10
Cash inflows	13.00	0.5303	24,000.00	12,727.71
Cash inflows	14.00	0.5051	24,000.00	12,121.63
Cash inflows	15.00	0.4810	24,000.00	11,544.41
PV of Cash Inflows =PVCI				2,49,111.79
NPV= PVCI - PVCO				2,008.35
Internal rate of return=	Lower rate+	(Lower rate NPV)	*(Higher rate- lower rate)
		(lowe rate NPV- Higher rate NPV)
	5%+	2008.35	*(8.13%-5%)
		(2008.35+43296.59)
	5%+0.14%
Internal Rate of return is 5.14%%