Calculate the IRR for the following project: a. An initial outflow of $15,220 followed by inflows...

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.

Expert Solution

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%

jeff jeffy answered 1 year ago

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