In: Finance
Calculate the IRR for the following project:
a. An initial outflow of $15,220 followed by inflows of $5,000, $6,000, and $6,500
b. An initial outflow of $47,104 followed by inflows of $16,000, $17,000, and $18,000.
Ans a) 7.00%
Year | Project Cash Flows (i) | DF@ 5% (ii) | PV of Project A ( (i) * (ii) ) | DF@ 10% (ii) | PV of Project A ( (i) * (ii) ) | |
0 | -15220 | 1 | (15,220.00) | 1 | (15,220.00) | |
1 | 5000 | 0.952 | 4,761.90 | 0.909 | 4,545.45 | |
2 | 6000 | 0.907 | 5,442.18 | 0.826 | 4,958.68 | |
3 | 6500 | 0.864 | 5,614.94 | 0.751 | 4,883.55 | |
NPV | 599.03 | NPV | (832.32) | |||
IRR = | Ra + NPVa / (NPVa - NPVb) * (Rb - Ra) | |||||
5% + 599.03 / (599.03 + 832.32)*5% | ||||||
7.00% | ||||||
b) 4.01%
Year | Project Cash Flows (i) | DF@ 2% (ii) | PV of Project A ( (i) * (ii) ) | DF@ 10% (ii) | PV of Project A ( (i) * (ii) ) | |
0 | -47104 | 1 | (47,104.00) | 1 | (47,104.00) | |
1 | 16000 | 0.980 | 15,686.27 | 0.909 | 14,545.45 | |
2 | 17000 | 0.961 | 16,339.87 | 0.826 | 14,049.59 | |
3 | 18000 | 0.942 | 16,961.80 | 0.751 | 13,523.67 | |
NPV | 1,883.95 | NPV | (4,985.29) | |||
IRR = | Ra + NPVa / (NPVa - NPVb) * (Rb - Ra) | |||||
2% + 1883.95 / (1883.95 + 4985.25)*8% | ||||||
4.01% |