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Marielle Machinery Works forecasts the following cash flows on a project under consideration. It uses the...

Marielle Machinery Works forecasts the following cash flows on a project under consideration. It uses the internal rate of return rule to accept or reject projects.

C0: -$10,900

C1: 0

C2: +$8,400

C3: +9,400

a. What is the project’s IRR?

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Answer #1

IRR of a project is the rate for which the NPV is zero

NPV of a project is the sum of the present value of all future cashflows

C0: -$10,900, C1: 0, C2: +$8,400, C3: +9,400

NPV = C0 + C1/(1+irr) + C2/(1+irr)2 + C3/(1+irr)3

0 = -10900 + 0 + 8400/(1+irr)2 + 9400/(1+irr)3

Method 1: IRR calculation using Excel

IRR can be calculated using IRR Function in excel as shown below:

=IRR(B2:B5) = 21.6392865%

B6 X ✓ fic =IRR(B2:35) 2 A 1 Time B Cashflow C D E F G - 10900 nm w No 8400 9400 21.6392865% IRR 8

Answer -> IRR = 21.6392865%

Method 2: Using ba ii plus calculator

CF0 = -10900

C01 = 0, F01 = 1

C02 = 8400, F02 = 1

C03 = 9400, F03 = 1

IRR -> CPT (Press IRR and then press CPT)

We get, IRR = 21.6392865

Answer -> Project's IRR = 21.6392865%

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