Homework Answers
IRR is that rate of return at which the NPV is zero. This can be solved using excel Solver or using the IRR() function or by trial and error.
| Year (n) | Cash flow | PW of CF |
| 0 | -4,50,000 | -4,50,000.00 |
| 1 | -42,500 | -35,008.87 |
| 2 | 92,800 | 62,968.94 |
| 3 | 3,86,000 | 2,15,752.04 |
| 4 | 6,14,600 | 2,82,975.85 |
| 5 | -2,02,200 | -76,687.96 |
| IRR | 21.40% | - |
IRR for the given series of cash flows = 21.40%
NPW vs IRR graph:
| IRR | PW |
| 10% | 1,72,295.14 |
| 20% | 17,540.51 |
| 30% | -91,356.73 |
| 40% | -1,69,950.17 |
| 50% | -2,27,943.21 |
| 60% | -2,71,577.00 |
| 70% | -3,04,976.79 |
| 80% | -3,30,936.72 |
| 90% | -3,51,391.22 |
| 100% | -3,67,706.25 |
The IRR is much higher than the MARR of 10% so this project should be undertaken.
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