Question

A colleague asks for your help in finding the discount rate where the NPV=0 for a set of cash flows. You quickly recall that this is the IRR for a project. Answer in %, rounding to 2 decimals.

Year 0 cash flow = -118,000

Year 1 cash flow = 43,000

Year 2 cash flow = 37,000

Year 3 cash flow = 45,000

Year 4 cash flow = 39,000

Answer 1

Calculation of IRR:
Particulars	Time	PVf @10%	Amount	PV
Cash Outflows	-	1.00	-1,18,000.00	-1,18,000.00
PV of Cash outflows = PVCO				-1,18,000.00
Cash inflows	1.00	0.9091	43,000.00	39,090.91
Cash inflows	2.00	0.8264	37,000.00	30,578.51
Cash inflows	3.00	0.7513	45,000.00	33,809.17
Cash inflows	4.00	0.6830	39,000.00	26,637.52
PV of Cash Inflows =PVCI				1,30,116.11
NPV= PVCI - PVCO				12,116.11
Statement showing NPV
Particulars	Time	PVf @15%	Amount	PV
Cash Outflows	-	1.00	-1,18,000.00	-1,18,000.00
PV of Cash outflows = PVCO				-1,18,000.00
Cash inflows	1.00	0.8696	43,000.00	37,391.30
Cash inflows	2.00	0.7561	37,000.00	27,977.32
Cash inflows	3.00	0.6575	45,000.00	29,588.23
Cash inflows	4.00	0.5718	39,000.00	22,298.38
PV of Cash Inflows =PVCI				1,17,255.23
NPV= PVCI - PVCO				-744.77
Internal rate of return=	Lower rate+	(Lower rate NPV)	*(Higher rate- lower rate)
		(lowe rate NPV- Higher rate NPV)
	10%+	12116.11	*(15%-10%)
		(12116.11+744.77)
	10%+ 4.71%
Internal Rate of return is 14.71%