Question

You Invest $3000 by buying 100 shares of Driss Inc at a price of $30 per share. One year from now, Driss pays you a dividend of 55 cents per share. One year later (i.e. two years from now), you sell your shares for $32. What return (IRR) did you get on your investment?

(Do not round intermediate calculations. Report your result as a percentage. Round the final answers to 2 decimal places. Omit the % sign in your response. For example, if your answer is 3.21%, just enter 3.21)

My note: I think IRR needs excel or financial calculator, but I don't know the set up of the equation in general. Please show every step and explain the process in detail. Thanks.

Answer 1

IRR is calculated using IRR function in Excel.

To compute IRR, we first input the cash flows in each year.

Cash outflow in year 0 = number of shares bought * price per share = 1000 * $30 = $30,000. As this is a cash outflow, it is entered with a negative sign.

Cash inflow in year 1 = number of shares bought * dividend per share = 1000 * $0.55 = $550.

Cash inflow in year 2 = number of shares sold * price per share = 1000 * $32 = $32,000.

IRR is 4.20%

ДА В 1 Year Cash Flow 2 0 (30,000) 1 550 32,000 5 IRR 4.20%! 3 2

B 1 Year 20 3 1 42 5 IRR Cash Flow - 30000 550 32000 =IRR(B2:34)