Question

Josef Samir is an investor in the Egyptian Exchange (EGX). He invests E£5,000 (Egyptian pound) in a cement company and receives dividends of E£65, 75, 76, and 76 over the next four years. At the end of the four years, he sells the stock for E£8,000. What is the IRR on this investment?

Answer 1

IRR is that discount rate for which NPV = 0. It has to be found out by trial and error.
Year	Cash Flow	PVIF at 13%	PV at 13%	PVIF at 14%	PV at 14%
0	$ -5,000.00	1.00000	$       -5,000.00	1.00000	$ -5,000.00
1	$          65.00	0.88496	$               57.52	0.87719	$          57.02
2	$          75.00	0.78315	$               58.74	0.76947	$          57.71
3	$          76.00	0.69305	$               52.67	0.67497	$          51.30
4	$    8,076.00	0.61332	$         4,953.16	0.59208	$    4,781.64
			$            122.09		$        -52.33
IRR lies between 13% and 14%. By simple interpolation IRR = 13%+1%*122.09/(122.09+52.33) =							13.70%