Question

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What is the IRR of the following set of cash flows?    Year Cash Flow 0...

What is the IRR of the following set of cash flows?

  

Year Cash Flow
0 –$11,280            
1 6,200            
2 4,200            
3 6,100            

Multiple Choice

  • 21.46%

  • 21.9%

  • 22.34%

  • 20.8%

  • 23%

Solutions

Expert Solution

Ans 21.9%

Year Project Cash Flows (i) DF@ 7% DF@ 7% (ii) PV of Project ( (i) * (ii) ) DF@ 27% (iii) PV of Project ( (i) * (iii) )
0 -11280 1 1                          (11,280.00) 1             (11,280.00)
1 6200 1/((1+7%)^1) 0.934579                               5,794.39 0.787                  4,881.89
2 4200 1/((1+7%)^2) 0.873439                               3,668.44 0.620                  2,604.01
3 6100 1/((1+7%)^3) 0.816298                               4,979.42 0.488                  2,977.96
NPV                               3,162.25 NPV                   (816.15)
IRR = Ra + NPVa / (NPVa - NPVb) * (Rb - Ra)
7% + 3162.25 / (3162.25 + 816.15)*20%
21.90%

jeff jeffy answered 1 year ago
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