A project with an initial cost of $72,400 is expected to generate annual cash flows of...
A project with an initial cost of $72,400 is expected to generate annual cash flows of $15,920 for the next 8 years. What is the project's internal rate of return?
Homework Answers
IRR is the rate at which the present value of cash inflows equals the value of initial outflow.Hence the equation is:
$72,400 = $15920 *PVAF (RATE,8 Years)
$72,400/$15920 = PVAF (RATE,8 Years)
4.5477 =PVAF (RATE,8 Years)
This equation can either be solved through excel or financial calculator.
Them way is to try and guess different rates and discount given cashflow.The rate at which cashflow equals initial outflow is the IRR.However such method is not feasable.Therefore you should try using excel worksheet or financial calculator .
The IRR for above equation is 14.595%
If you have any doubt,please ask in the comments.
Please upvote the answer.
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