Question

Project L requires an initial outlay at t 0 of $72,041, its expected cash inflows are $12,000 per year for 11 years, and its WACC is 9%. What is the project's IRR? Round your answer to two decimal places

Answer 1

IRR is the Rate at which PV of cash Inflows are equal to PV of Cash Outflows.

Year	CF	PVF @11%	Disc CF	PVF @12%	Disc CF
0	$ -72,041.00	1.0000	$ -72,041.00	1.0000	$ -72,041.00
1	$ 12,000.00	0.9009	$ 10,810.81	0.8929	$ 10,714.29
2	$ 12,000.00	0.8116	$    9,739.47	0.7972	$    9,566.33
3	$ 12,000.00	0.7312	$    8,774.30	0.7118	$    8,541.36
4	$ 12,000.00	0.6587	$    7,904.77	0.6355	$    7,626.22
5	$ 12,000.00	0.5935	$    7,121.42	0.5674	$    6,809.12
6	$ 12,000.00	0.5346	$    6,415.69	0.5066	$    6,079.57
7	$ 12,000.00	0.4817	$    5,779.90	0.4523	$    5,428.19
8	$ 12,000.00	0.4339	$    5,207.12	0.4039	$    4,846.60
9	$ 12,000.00	0.3909	$    4,691.10	0.3606	$    4,327.32
10	$ 12,000.00	0.3522	$    4,226.21	0.3220	$    3,863.68
11	$ 12,000.00	0.3173	$    3,807.40	0.2875	$    3,449.71
NPV			$    2,437.18		$      -788.61

IRR = rate at which least +ve NPV + [ NPV at that Rate / Change in NPV due to 1% inc in disc Rate ] *1%

= 11% + [ 2437.18 / 3225.79 ] * 1%

= 11% + 0.76%

= 11.76%

IRR of Project is 11.76%

As IRR > WACC, Project can be accepted.