Question

Purple Rain Company is developing a new technology that has the potential of forever changing the way that vegetables are grown. The initial costs associated with its manufacturing facility plant and other associated costs will be $4.6 million (at the present time).

The project is expected to generate only one cash flow of $8.5 million. Given the complexity of the project, the cash inflow will not be received until 10 years from now.

Calculate the internal rate of return on the investment

Answer 1

Solution :

The IRR of the investment is = 6.33 %

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

07.11.2019 - Microsoft Excel FILE Gas HOME INSERT A B PAGE LAYOUT FORMULAS DATA REVIEW VIEW Statement showing calculation of Internal Rate of Return on the Investment Sl.No. Particulars Amount 1 Cash outflow Year 0 $ 4,600,000.00 2 Cash Inflow Year 1 3 Cash Inflow Year 2 4 Cash Inflow Year 3 5 Cash Inflow Year 4 6 Cash Inflow Year 5 7 Cash Inflow Year 6 8 Cash Inflow Year 7 9 Cash Inflow Year 8 10 Cash Inflow Year 9 11 Cash Inflow Year 10 8,500,000.00 12 Internal Rate of Return =IRR(D4:D14) 6.3325% IRR of a project is calculated using the formula =IRR(values,guess) In the given formula adding a guess rate is optional Also, the series of cash flows should have atleast one negative value and one positive value to calculate IRR Thus, Formula for calculating IRR of the Investment = IRR(D4:D14) The IRR on the Investment = 6.33 %