Question

Compute the internal rate of return for the cash flows of the following two projects: (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)

Year	Project A			Project B
0	–$	15,300		–$	12,900
1		6,000			3,200
2		6,800			9,700
3		5,600			5,200

	Internal rate of return
Project A		%
Project B		%

Answer 1

Let irr be x%
At irr,present value of inflows=present value of outflows.

A:

15,300=6,000/1.0x+6,800/1.0x^2+5,600/1.0x^3

Hence x=irr=9.93%(Approx).

B:

12900=3200/1.0x+9700/1.0x^2+5200/1.0x^3

Hence x=irr=17.74%(Approx).

	Internal rate of return
Project A	9.93%(Approx).
Project B	17.74%(Approx).