Question

Use a financial calculator or an Excel spreadsheet to estimate the IRR for each of the following​ investments:

The Yield for Investment A:

The Yield for Investment B:

	A	B
Initial Investment	6,400	9,535
Year 1	$1,822.65	$2,200
Year 2	$1,822.65	$2,500
Year 3	$1,822.65	$3,100
Year 4	$1,822.65	$3,600
Year 5	$1,822.65	$4,100

Answer 1

Inv A
IRR is the rate at which NPV =0
IRR	0.13068381
Year	0	1	2	3	4	5
Cash flow stream	-6400	1822.65	1822.65	1822.65	1822.65	1822.65
Discounting factor	1	1.130684	1.278446	1.445518	1.6344239	1.848017
Discounted cash flows project	-6400	1611.989	1425.676	1260.897	1115.1636	986.2736
NPV = Sum of discounted cash flows
NPV Inv A =	5.84124E-05
Where
Discounting factor =	(1 + IRR)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
IRR=	13.07%
Inv B
IRR is the rate at which NPV =0
IRR	0.165843865
Year	0	1	2	3	4	5
Cash flow stream	-9535	2200	2500	3100	3600	4100
Discounting factor	1	1.165844	1.359192	1.584606	1.8474027	2.153783
Discounted cash flows project	-9535	1887.045	1839.328	1956.323	1948.6818	1903.627
NPV = Sum of discounted cash flows
NPV Inv B =	0.005151601
Where
Discounting factor =	(1 + IRR)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
IRR=	16.58%