Question

20. You have 3 projects with the following cash flows: Year 0 1 2 3 Proient Project 1 -150 20 40 60 80 Project 2 -825 0 0 7000 -6500 Project 3 20 40 60 80 -245 a. For which of these projects is the IRR rule reliable? b. Estimate the IRR for each project to the nearest 1%). c. What is the NPV of each project if the cost of capital is 5%? 20%? 50%?!

Answer 1

a: IRR rule is applicable to Project 1 since it has conventional cash flows and only 1 sign change

b and c

	IRR	NPV at 5%	NPV at 20%	NPV at 50%
Project 1	10.24%	22.98	-32.25	-85.31
Project 2	10.30%	-125.70	91.28	-34.88
Project 3	33.36%	-59.94	-16.86	8.64

Workings

Book1 - Excel Sign in - 0 X Comments Review View General $ -% Help - AutoSave of . . . File Home Insert Draw Page Layout Formulas Data Calibri 11 AM A === ele Paste" BIU - 20-A, ESE Clipboard Font Alignment C13 . * Bir Year A B C D E F G H I Tell me what you want to do 2 PZ B 2 Conditional Format as Cell Formatting Table Styles Share 47 0 insert x Delete - Format - Sort & Find & Filter Select Editing Number Styles Cells J 1 20 2 40 Year 0 Project 1 -150 Project 2 -825 0 Project 3 -20 3 4 60 80 7000 -6500 80 -245 IRR NPV at 5% NPV at 20% NPV at 50% Project 1 EIRR(D14:H14) ENPV(5%,$E$14:$H$14)+$D$14 =NPV(20%,E14:H14)+D14 ENPV(50%,E14:H14)+D14 Project 2 EIRR(D15:H15) =NPV(5%,E15:H15)+D15 =NPV(20%,E15:H15)+D15 =NPV(50%,E15:H15)+D15 Project 3 =IRR(D16:H16) ENPV(5%,E16:H16)+D16 =NPV(20%,E16:H16)+D16 ENPV(50%,E16:H16)+D16 0 40 60