Question

x Incorrect. The IRR Excel® function can be used to solve for the internal rate of return for the cash flows. The IRR function takes the form IRREIRR(INCR, CF_COLUMN VALUES) The following spreadsheet has been developed to solve for the incremental internal rate of return for the comparison of the challenger versus the defender: End of Year (EOY) Net Cash Flow (NCF) for Net Cash Flow (NCF) Incremental Cash Flow challenger for defender (INCR, CF) 0 $-980,000 $0,000 $-980,000 1-9 $390,000 $0,000 $390,000 10 $525,000 $0,000 $525,000 Round your answer to the nearest dollar. The tolerance is +/- 10. Determine the IRR for the incremental cash flow. x IRR = 18.58 J% Do all calculations to 5 decimal places and round final answer to 2 decimal places. The tolerance is +/- 0.02. Click if you would like to Show Work for this question: Open Show Work

Please answer with 2 decimal places only. Thanks!

Answer 1

You can directly use IRR function in the excel sheet

SUM х fic =IRR(D9:019) A B C D E 5 6 7 8 9 Year Cash inflow 0 10 1 -9,80,000 390000 390000 11 2 12 3 390000 13 4 390000 14 5 390000 15 6 16 7 390000 390000 390000 390000 17 8 18 9 19 10 525000 20 IRR = 38.46% =IRR(D9:019) 21 22

Therefore by using excel we get accurate result as 38.46%

by hand calculation:-
Let us discount cash flow 10). by Year Cash inflows Discounting factor 10"). Present Value 1-9 $ 390,000 515902 $ 22460178 lo $ 525,000 0.38554 $ 202,408.5 Total present 2448426.3 value at 10) The present value comes to $ 244 8.426-3 which is more than initial investment $ 980.000 Therefore, higher discount rate is suggested say G0L. CScanned with CamScanner

for Discounting factor @ 401. - Year Cash flow Discounting Present Value factor @ 40% 9-9 $ 390,000 2.37899 $ 9278061 $_525,000 003457 $ 18149.25 Total present value $ 945955:35 CScanned with CamScanner

The IRR is thus more than 10"). but less than 40% The exact rate can be obtained by interpolation @ 10. $ 2448426.3 IRR 7 * $ 980,000 GO $ 945,955.35 IRR). 90 980,000 - 2448,426.3 2448,426.3 945955:35 10 40 TRR = 10 + 1468426.3 X 30 1502470.95 IRR 39.32 % CScanned with CamScanner
here, I have solved by assuming for year 1-9 each years cash inflow is $ 390,000, not the combined 9 year's cash inflow is $390,000

Let us discount cash flow 10). by Year Cash inflows Discounting factor 10"). Present Value 1-9 $ 390,000 515902 $ 22460178 lo $ 525,000 0.38554 $ 202,408.5 Total present 2448426.3 value at 10) The present value comes to $ 244 8.426-3 which is more than initial investment $ 980.000 Therefore, higher discount rate is suggested say G0L. CScanned with CamScanner

for Discounting factor @ 401. - Year Cash flow Discounting Present Value factor @ 40% 9-9 $ 390,000 2.37899 $ 9278061 $_525,000 003457 $ 18149.25 Total present value $ 945955:35 CScanned with CamScanner

The IRR is thus more than 10"). but less than 40% The exact rate can be obtained by interpolation @ 10. $ 2448426.3 IRR 7 * $ 980,000 GO $ 945,955.35 IRR). 90 980,000 - 2448,426.3 2448,426.3 945955:35 10 40 TRR = 10 + 1468426.3 X 30 1502470.95 IRR 39.32 % CScanned with CamScanner