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Warr Company is considering a project that has the following cash flow data. What is the...
Warr Company is considering a project that has the following cash flow data. What is the project's IRR? Year 0 1 2 3 4 Cash flows -$1,415 $400 $400 $400 $400
Solutions
Expert Solution
Ans 5.10%
| Year | Project Cash Flows (i) | DF@ 5% | DF@ 5% (ii) | PV of Project ( (i) * (ii) ) | DF@ 10% (iii) | PV of Project ( (i) * (iii) ) |
| 0 | -1415 | 1 | 1 | (1,415.00) | 1 | (1,415.00) |
| 1 | 400 | 1/((1+5%)^1) | 0.952381 | 380.95 | 0.909 | 363.64 |
| 2 | 400 | 1/((1+5%)^2) | 0.907029 | 362.81 | 0.826 | 330.58 |
| 3 | 400 | 1/((1+5%)^3) | 0.863838 | 345.54 | 0.751 | 300.53 |
| 4 | 400 | 1/((1+5%)^4) | 0.822702 | 329.08 | 0.683 | 273.21 |
| NPV | 3.38 | NPV | (147.05) | |||
| IRR = | Ra + NPVa / (NPVa - NPVb) * (Rb - Ra) | |||||
| 5% + 3.38 / (3.38 + 147.05 )*5% | ||||||
| 5.10% |
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