If a project has a year 0 cash flow of -9,350, a year 1 cash flow...

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If a project has a year 0 cash flow of -9,350, a year 1 cash flow...

If a project has a year 0 cash flow of -9,350, a year 1 cash flow of zero, a year two cash flow of “X”, and no other cash flows, how would you calculate the IRR of this investment in terms of “X”?

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Answer 1

Answer #1

IRR is the rate at which present value of future cash inflows equates PV of Cash outlay.

i.e Cash Outlay = PV of Cash Inflows.

When Cash flow for year 2 is X, we assume Rate of interest to be R.

Since Cash flow X is to be received after 2 years, it needs to be discounted by 2 years i.e N = 2years

i.e 9350 = X / (1+ R)^2

We solve for R and that is the IRR.

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Answer 2

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If a project has a year 0 cash flow of -9,350, a year 1 cash flow...

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