Question

1. Find the rate of return for the cash flows given below.

Year	Cash Flow,$	Year	Cash Flow,$
0	-15,000	6	3000
1	0	7	3500
2	1,000	8	4000
3	1,500	9	4500
4	2,000	10	6000
5	2500

Answer 1

Here we need to find the interest rate where NPV is zero

NPV = (-15000/(1+0.0939)^0)+(0/(1+0.0939)^1)+(1000/(1+0.0939)^2)+ (1500/(1+0.0939)^3)+ (2000/(1+0.0939)^4)+ (2500/(1+0.0939)^5)+ (3000/(1+0.0939)^6)+ (3500/(1+0.0939)^7)+ (4000/(1+0.0939)^8)+ (4500/(1+0.0939)^9)+(6000/(1+0.0939)^10)

= -4.49

Hence the rate of return is 9.39 percent