Question

Assume that an investment generates the following income stream,

End of Year	Income Stream
20172017	​$135135
20182018	​$120120
20192019	​$105105
20202020	​$8585
20212021	​$6060
20222022	​$3535
20232023	​$2020

, and can be purchased at the beginning of 2017 for $1,400 and sold at the end of 2023 for $1,600. Estimate the IRR for this investment. If a minimum return of 6 % is required, would you recommend this investment?

The IRR on this investment is

Answer 1

IRR is internal rate of return , a rate when NPV=0

-1400+135/(1+r)^1+120/(1+r)^2+105/(1+r)^3+85/(1+r)^4+60/(1+r)^5+35/(1+r)^6+20/(1+r)^7+1600/(1+r)^7=0

use trial and error method to find r so that left side of equation equals zero

after trying many different values of r, we get r=7.75% which is IRR

As IRR of 7.75% is higher than minimum rate of 6%, so I recommend this investment

the above is answer..