Question

Your friend asks you to invest $15,000 in a business venture. Based on your estimates, you would receive nothing for 3 years, at the end of year 4 you would receive $5,407 , and at the end of year 5 you would receive $18,083. If your estimates are correct, what would be the IRR on this investment?

Answer 1

IRR on this investment is 9.89% or 9.9% or 10%

Working:

IRR is the rate at which present value of cash inflows is equal to investment.
Year	Cash flows	Discount factor@ 5%	Present Value
0	$       -15,000	1.0000	$     -15,000.00
1	0	0.9524	0
2	0	0.9070	0
3	0	0.8638	0
4	$           5,407	0.8227	$         4,448.35
5	$         18,083	0.7835	$       14,168.50
	Net Present Value		$         3,616.86
Year	Cash flows	Discount factor@10%	Present Value
0	$       -15,000	1.0000	$     -15,000.00
1	0	0.9091	0.00
2	0	0.8264	0.00
3	0	0.7513	0.00
4	$           5,407	0.6830	$         3,693.05
5	$         18,083	0.6209	$       11,228.12
	Net Present Value		$             -78.83
IRR	=	L+(H-L)*(A/(A-B))				Where,
	=	5%+(10%-5%)*(3616.86/(3616.86+78.83))				L	5%
	=	9.89%				H	10%
						A	$ 3,616.86
						B	$     -78.83