Question

In: Finance

An investment that Kevin is considering offers the following cash flows. Year 1 Initial investment of...

An investment that Kevin is considering offers the following cash flows.

Year 1 Initial investment of $10,000

Year 2 Inflow of $2,000

Year 3 Inflow of $1,500

Year 4 Additional investment of $5,000

Year 5 Inflow of $1,200

Year 6 Inflow of $2,200

Year 7 Inflow of 1,500

Year 8 Inflow of $1,000

Year 9 Inflow of $1,200

Year 10 Sale proceeds of $17,000

5. What is the internal rate of return (IRR) that this investment offers if all cash flows occur at the end of each period?

a. 10.10%

b. 10.87%

c. 9.24%

d. 9.74%.

Solutions

Expert Solution

10.8700%
Cash flows Year Discounted CF
                           -   0 0.00
         (10,000.00) 1 -9019.57
              2,000.00 2 1627.05
              1,500.00 3 1100.65
           (5,000.00) 4 -3309.13
              1,200.00 5 716.33
              2,200.00 6 1184.51
              1,500.00 7 728.44
              1,000.00 8 438.01
              1,200.00 9 474.08
           17,000.00 10 6057.71

IRR = 10.87% (use IRR function in Excel)


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