Determine the Rate of Return (196) for the cash flow shown below, if the MARR is...

Question

Question

business economics

Answer 1

Answer #1

Let IRR is I%, then

-200000 + 50000 * (P/A, I%,5) + 30000 * (P/A, I%,3) * (P/F, i%,5) = 0

50000 * (P/A, I%,5) + 30000 * (P/A, I%,3) * (P/F, i%,5) = 200000

Dividing by 10000

5 * (P/A, I%,5) + 3 * (P/A, I%,3) * (P/F, i%,5) = 20

using trail and error method

When I = 15%, value of 5 * (P/A, I%,5) + 3 * (P/A, I%,3) * (P/F, i%,5) = 5 * 3.352155 + 3*2.283225 * 0.497177 = 20.166274

When I = 16%, value of 5 * (P/A, I%,5) + 3 * (P/A, I%,3) * (P/F, i%,5) = 5 * 3.274294 + 3*2.245890 * 0.476113 = 19.579362

using interpolation

i = 15% + (20.166274 - 20) / (20.166274 - 19.579362)*(16%-15%)

I = 15% + 0.28%

I = 15.28%

First option is correct ie. IRR is over 15%

Answer 2

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