Question

Compute the internal rate of return for the cash flows of the following two projects (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.):

    

Year	Project A		Project B
0	–$	14,800	–$	12,400
1		5,800		3,100
2		6,600		9,300
3		5,400		5,000

   

	Internal rate of return
Project A		%
Project B		%

Answer 1

Let irr be x%
At irr,present value of inflows=present value of outflows.

A:

14,800=5,800/1.0x+6,600/1.0x^2+5,400/1.0x^3

Hence x=irr=9.94%(Approx).

B:

12400=3100/1.0x+9300/1.0x^2+5000/1.0x^3

Hence x=irr=17.76%(Approx).

	Internal rate of return
Project A	9.94%(Approx).
Project B	17.76%(Approx).