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What is the approximate IRR for a project that cost $200,000 and provide cash inflows of...

What is the approximate IRR for a project that cost $200,000 and provide cash inflows of $40,000 for 6 years.

Please do not use excel

Expert Solution

The simple method of calculating IRR without MS Excel is Annuity Table:

Cost of the Project = 200,000

Annual Inflows = 40,000

Life of the Project = 6 years

Step 1: Calculate the payback period of the project

Payback Period = Initial Investment / Annual Inflows

= 200000/40000 = 5 years

Step 2: Now use the Present Value Annuity Table, and locate that at what rate for 6 years, the present value is 5 or around 5.

You will find that at the rate 5%, for 6 years, PV is 5.07569 and at 5.5%, for 6 years, PV is 4.99553. So, it means IRR lies between 5 to 5.5%.

Step 3: Use following formula to calculate exact IRR

= 5.47%

The IRR for the project is 5.47%

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ekkarill92 answered 1 year ago

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