Maggie green just borrow $5000. she is planning on to pay it back in 5 equal...

Question

Question

Maggie green just borrow $5000. she is planning on to pay it back in 5 equal instalment of $1200. what is the IRR?

business economics

Answer 1

Answer #1

Borrowed amount = $5000

Time = 5 years

Value of each instalment = $1200

Let, IRR = R

5000 = 1200*(1-1/(1+R)^5)/R

At R = 6%

Present Value loan payment = $5054.84

At R = 7%

Present Value loan payment = $4920.24

As per the method of interpolation,

R = 6% + ((5054.84-5000)/(5054.84-4920.24))*(7%-6%)

R = 6.4%

So, IRR is 6.4%

Answer 2

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