Question

What is the discount rate at which the following cash flows have a NPV of $0? Answer in %, rounding to 2 decimals. Year 0 cash flow = -133,000 Year 1 cash flow = 34,000 Year 2 cash flow = 40,000 Year 3 cash flow = 33,000 Year 4 cash flow = 41,000 Year 5 cash flow = 33,000 Year 6 cash flow = 45,000

Answer 1

The IRR is the interest rate that makes the NPV of the project equal to zero. So, the equation that defines the IRR for this project is:

0 = -$133,000 + $34,000/(1 + IRR) + $40,000/(1 + IRR)^2 + $33,000/(1 + IRR)^3 + $41,000/(1 + IRR)^4 + $33,000/(1 + IRR)^5 + $45,000/(1 + IRR)^6

IRR = 17.10%