Question

You want to start an organic garlic farm. The farm costs $220,000, to be paid in full immediately. Year 1 cash flows will be $25,000, and grow at 5% a year into year 5 when you decide to sell the farm at the end of the year for $300,000 (in year 5 you get cash flows from selling both the garlic and the farm). Assuming these estimates are all correct, what is the IRR of the garlic farm investment? Round to the tenth of a percent (e.g. 5.6%=5.6). [Hint: You'll want to solve this in Excel using the IRR function or Goal Seek. Make sure the IRR cell is set to show decimals.]

Answer 1

IRR

17.50%

Workings

Year	Cash flows
0	-220000.00
1	25000.00
2	26250.00
3	27562.50
4	28940.63
5	330387.66

AutoSave on 2 Book2 - Excel H D Draw Page Layout File Home Insert Formulas Data Review View Help - 11 2 Calibri BIUL ID - A A A A = = = = = = 1. = = Percentage $ -% t ,0 , Sign in - 0 Tell me what you want to do Share Comme 2 PZ B 2 insert - 247 0 Delete- Conditional Format as Cell Format Sort & Find & Formatting Table Styles Filter Select Styles Cells Editing - 40.00 68 % Paste - , Clipboard Alignment Number E2 - X fix IRR А DEF Year IRR =IRR(C2:07) Cash flows -220000 25000 =C3105% =C4% 105% C5*105% =C6*105%+300000