Question

IRR

A project has an initial cost of $55,000, expected net cash inflows of $11,000 per year for 10 years, and a cost of capital of 14%. What is the project's IRR? Round your answer to two decimal places.

Answer 1

NPV at 5% rate:

Present value of cahss inflows for 10 years ($11,000* Annuity factor i.e. 5.019): $ 55,209

Less: Initial Investment:                                                                                           $55,000

Net present value:                                                                                                    $ 209

NPV at 16%:

Present value of cahss inflows for 10 years ($11,000* Annuity factor i.e. 4.833): $ 53,163

Less: Initial Investment:                                                                                           $55,000

Net present value:                                                                                                    ($1837)

IRR = Lower rate + (NPV at lower rate / Differenc ein NPV of both rates) * Difference in rates

           = 15% + ($209 / $ 2046) *1% = 15.10%