Question

AZ B C D . A -5000 1800 1900 2000 E F G H I NPV with low Flow" NPV ich row NPV with high IRR approximation
Find IRR using this formula. the Numbers are the cash flowsh

Answer 1

If Required Return is 5%:

NPV = -$5,000 + $1,800/1.05 + $1,900/1.05^2 + $2,000/1.05^3
NPV = $165.32

If Required Return is 7%:

NPV = -$5,000 + $1,800/1.07 + $1,900/1.07^2 + $2,000/1.07^3
NPV = -$25.63

Approximate IRR = rLow + [NPV with rLow / (NPV with rLow - NPV with rHigh)] * (rHigh - rLow)
Approximate IRR = 0.05 + [$165.32 / ($165.32 + $25.63)] * (0.07 - 0.05)
Approximate IRR = 0.05 + $165.32 / $190.95 * 0.02
Approximate IRR = 0.05 + 0.0173
Approximate IRR = 0.0673 or 6.73%