Calculate the IRR(s) for a 10-year project with the following cash flows: CF0 = -30, CF1...

Calculate the IRR(s) for a 10-year project with the following cash flows: CF0 = -30, CF1 = 10 = CF2 = CF3 = CF4 = CF5 = CF6 = CF7 = CF8 = CF9, and CF10 = -65. In Excel, plot the NPV against r (= discount rate), using r = 0%, 2%, 4%, 6%, 8%, 10%, 12%, 14%, 16%, 18%, 20%, 22%, 24%, 26%, 28%, and so on until you find all IRRs on the horizontal axis. Approximately, what are IRRs?

Solutions

Expert Solution

Internal Rate of Return (IRR) is the rate at which Net Present value is equal to zero which means present value of cash inflows equals to present value of cash outflows.

Please refer to below spreadsheet for calculation and plot of NPV for various required rate of return (r) and IRRs.

Formula reference -

We can see in above plot of NPV and required rate of return, NPV curve crossed twice the x-axis where NPV value is Zero.

NPV crossed X-axis(horizontal) at approx 3.5% and 19.5%

Thus,

IRRs of above project is 3.5% and 19.5% (approximately).

Please note - to plot NPV and required rate of return, we may use "scatter with smooth lines and markers" in excel.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

There is a project with the following cash flows: CF0 = -850; CF1 = 300; CF2...

There is a project with the following cash flows: CF0 = -850; CF1 = 300; CF2 =320; CF3 = 340; CF4 = 360. If the appropriate discount rate is 10%, what is the project's MIRR? (Assume the same reinvestment rate) 14.08% 15.65% 17.21% 18.29% 19.15%

An investment project has the following cash flows: CF0 = -1,000,000; CF1 – CF8 = 200,000...

An investment project has the following cash flows: CF0 = -1,000,000; CF1 – CF8 = 200,000 each. If the required rate of return is 12%: a. What decision should be made using NPV? (5%) b. How would the IRR decision rule be used for this project? What decision would be reached? (10%) c. How are the above two decisions related? (10%)

A potential CB project has the following cash flows: CF0 = -$500, CF1 = $300, CF2...

A potential CB project has the following cash flows: CF0 = -$500, CF1 = $300, CF2 = $200, CF3 = $150. WACC = 6%. Compute the following: A. Payback Period B. NPV C. IRR

a. Find present value of the following cash flows at 3% rate: CF0 = -1000; CF1...

a. Find present value of the following cash flows at 3% rate: CF0 = -1000; CF1 = 300; CF2 = 560; CF3 = -90; CF4 = 250. b. What is the future value of these cash flows?

Match up the payback period with the cash flows. CF0: -1800 CF1: 930 CF2: 130...

Match up the payback period with the cash flows. CF0: -1800 CF1: 930 CF2: 130 CF3: 830 CF4: 420 CF0: -1900 CF1: 800 CF2: 350 CF3: 720 CF4: 120 CF0: -2000 CF1: 820 CF2: 170 CF3: 830 CF4: 320 CF0: -1750 CF1: 700 CF2: 350 CF3: 520 CF4: 450 CF0: -1550 CF1: 500 CF2: 170 CF3: 840 CF4: 320 A. About 3.56 years B. About 3.40 years C. About 3.13 years D. About 2.89 years E. About 3.25...

There are two projects: Project A and Project B a. Project A: CF0 = -6000; CF1-5...

There are two projects: Project A and Project B a. Project A: CF0 = -6000; CF1-5 = 2000; I/YR = 14. Calculate NPV, IRR, MIRR, Payback period, and discounted payback period for Project A. Project B: CF0 = -18000; CF1-5 = 5600; I/YR = 14. Calculate NPV, IRR, MIRR, Payback period, and discounted payback period for Project B. b. If the two projects are independent, which project(s) would be accepted? c. If the two projects are mutually exclusive, which project...

QUESTION Match up the payback period with the cash flows. CF0: -1360 CF1: 560 CF2: 330...

QUESTION Match up the payback period with the cash flows. CF0: -1360 CF1: 560 CF2: 330 CF3: 820 CF4: 200 CF0: -530 CF1: 500 CF2: 100 CF3: 970 CF4: 130 CF0: -900 CF1: 680 CF2: 110 CF3: 950 CF4: 180 CF0: -1675 CF1: 580 CF2: 240 CF3: 700 CF4: 180 CF0: -1230 CF1: 590 CF2: 240 CF3: 550 CF4: 410 A. About 2.73 years B. About 2.12 years C. About 3.86 years D. About 2.57 years E. About 1.30 years

2. a) Calculate the IRR of the following cash flows: -$550,000 in year 0; $430,000 in...

2. a) Calculate the IRR of the following cash flows: -$550,000 in year 0; $430,000 in year 1; $100,000 in year 2; and $200,000 in year 3. Is the project acceptable if the cost of capital is 10%? b) Now calculate the MIRR of the same cash flows assuming a reinvestment rate of 12%. Is the project acceptable or not acceptable under this methodology?

You have the chance to participate in a project that produces the following cash flows. CF0=?...

You have the chance to participate in a project that produces the following cash flows. CF0=? CF1=$0 CF2=$11,000 The NPV of the project is $4,090.91. If the opportunity cost of capital is 10%, a) you would accept the project, if the IRR is greater than the required return. b) you would not accept the project, as the largest cash inflow occurs at the end of the project. c) you would not be able to decide whether to accept the project,...

Calculate the value of the stream of cash flows below in Year 4. t=0--->CF0 = $450...

Calculate the value of the stream of cash flows below in Year 4. t=0--->CF0 = $450 t=1--->CF1 = $550 t=2--->CF2 = $650 t=3--->CF3 = $750 t=4--->CF4 = $850 t=5--->CF5 = $950 t=6--->CF6 = $1050 The relevant rate is 8%.

Subjects