Question

QUESTION 7

1. Consider the following cash flows:

   Year	Cash Flow
   0	-$10,000
   1	$1,000
   2	$2,000
   3	$3,000
   4	$4,000
   5	$5,000

   Which equation would you use to compute the IRR?

   	1.	-$10000 + $1000(P/G, i, 5) = 0
   	2.	-$10,000 + $1,000 * (P/A, i, 5) + $1,000 * (P/G, i, 5) = 0
   	3.	-$10,000 + $1,000 + $1,000 * (P/G,i,5) = 0
   	4.	None of the above

Answer 1

IRR is the rate at which NPV = 0

i.e. -10,000 + 1,000*PVF(i, 1)+2,000*PVF(i,2) + 3000*PVF(i, 3)+4000*PVF(i,4) + 5000*PVF(i,5) = 0

Hence, the answer is 4.None of the above