Homework Answers
| Calculation of IRR | |||
| Year | Cashflows ($) | Discounting factor @ 11.063% | PV of cashflows |
| 0 | -760600 | 1 | -760600.00 |
| 1 | 237600 | 0.900389869 | 213932.63 |
| 2 | 237600 | 0.810701916 | 192622.78 |
| 3 | 237600 | 0.729947792 | 173435.60 |
| 4 | 274800 | 0.657237596 | 180608.89 |
| NPV | 0 | ||
| We know that IRR is the rate at which NPV of the project is 0. By trial and error method we guessed the IRR of project to be 11.063%. So the IRR is 11.063% as the NPV is zero at that rate (see the table above). | |||
| Answer: 11.06% (Option B) |
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