Question

Please round to the nearest two decimals (:

calculate the internal rate of return (IRR). Then indicate, for the project, the maximum cost of capital that the firm could have and still find the IRR Internal rate of return For the project shown in the following table, acceptable Data Table The project's IRR is% Round to two decimal places.) (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Initial investment (CFo) Year (f $120,000 Cash inflows (CF) $15,000 $50,000 $15,000 4 $20,000 5 $50.000

Answer 1

IRR is the Rate at which PV of Cash Inflows are equal to PV of Cash Outflows.

Year	CF	PVF @7%	Disc CF	PVF @8%	Dsic CF
0	$ -1,20,000.00	1.0000	$ -1,20,000.00	1.0000	$ -1,20,000.00
1	$      15,000.00	0.9346	$      14,018.69	0.9259	$      13,888.89
2	$      50,000.00	0.8734	$      43,671.94	0.8573	$      42,866.94
3	$      15,000.00	0.8163	$      12,244.47	0.7938	$      11,907.48
4	$      20,000.00	0.7629	$      15,257.90	0.7350	$      14,700.60
5	$      50,000.00	0.7130	$      35,649.31	0.6806	$      34,029.16
NPV			$           842.31		$      -2,606.93

IRR = Rate at which least +ve NPV + [ NPV at that Rate / Change in NPV due to 1% inc in DIsc Rate ] * 1%

= 7% + [ 842.31 / 3449.24 ] * 1%

= 7% + 0.24%

= 7.24%