Question

A colleague asks for your help in finding the discount rate where the NPV=0 for a set of cash flows. You quickly recall that this is the IRR for a project. Answer in %, rounding to 2 decimals.

Year 0                       cash flow = -109,000

Year 1                        cash flow = 43,000

Year 2                        cash flow = 35,000

Year 3                        cash flow = 36,000

Year 4                        cash flow = 37,000...

Answer 1

IRR of a project is the discount rate at which the NPV of the project will be equal to zero. 

 

IRR can be calculated using the Excel function:

 

Year	Cashflows
0	-$109,000
1	$43,000
2	$35,000
3	$36,000
4	$37,000
IRR	14.86	IRR(B2:B6)

 

The discount rate at which the NPV will be zero is 14.86%.

 

The IRR for the project is 14.86%.

The IRR for the project is 14.86%.