The investment is being offered to her at an initial purchase price of $459,000. After 5...
The investment is being offered to her at an initial purchase price of $459,000. After 5 years, she is hoping to sell this investment for $500,000. During the 5-year period, the client expects annual cash flows of $17,500, $85,000, $8,500, $9,000, and $10,000. What is the client’s internal rate of return (IRR) on the investment?
Homework Answers
| Internal rate of return is the rate at which net present value of cash flow is zero. | |||||
| Year | Cash Flow | ||||
| 0 | $ -4,59,000 | ||||
| 1 | 17,500 | ||||
| 2 | 85,000 | ||||
| 3 | 8,500 | ||||
| 4 | 9,000 | ||||
| 5 | 5,10,000 | ||||
| IRR | = | =irr(C4:C9) |
C4:C9 is the cash flows from year 0 to 5. |
||
| = | 7.48% | ||||
| Working: | |||||
| Year 5 cash flow | = | $ 10,000 | + | $ 5,00,000 | |
| = | $ 5,10,000 | ||||
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