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Question: An investment will cost $100 and is expected to produce the following cash flows. The...

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An investment will cost $100 and is expected to produce the following cash flows. The risk-adjusted discount rate for investments with this level of risk is 15%. Partition the IRR that is projected to be earned via this investment

Year . Cash Flow ($)

1 5

2 10

3 20

4 30

5 50

6 30

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Answer #1

Calculating IRR,

100 = 5/(1 + r)1 + 10/(1 + r)2 + 20/(1 + r)3 + 30/(1 + r)4 + 50/(1 + r)5 + 30/(1 + r)6

Using Trial and Error Method,

r = 9.02%

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