Question

Frye Foods is considering a project that has the following cash flow data. What is the project's IRR? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.
Year:		0		1	2	3	4	5
Cash flows:		-$850		$325	$325	$325	$325	$325

Answer 1

Ans : IRR = 26.51 % approximately ( exactly = 26.372 %)

Step 1: Find the present value of cash flows at 25 % rate.
Present value factor (1/(1+rate)^n	Present value factor	Cash flows	Present value
1/(1.25)	0.8	325	260
1/(1.25)^2	0.64	325	208
1/(1.25)^3	0.512	325	166.4
1/(1.25)^4	0.4096	325	133.12
1/(1.25)^5	0.32768	325	106.496
		Present value of cash flows	874
		Initial investment	850
			24
Step 2: Find the present value of cash flows at 30 % rate.
Present value factor (1/(1+rate)^n	Present value factor	Cash flows	Present value
1/(1.30)	0.769230769	325	250.00
1/(1.30)^2	0.591715976	325	192.31
1/(1.30)^3	0.455166136	325	147.93
1/(1.30)^4	0.350127797	325	113.79
1/(1.30)^5	0.269329074	325	87.53
		Present value of cash flows	792
		Initial investment	850
			-58
Step 3. The value at the both rates are subtracted to find the amount at 1%
		Difference to get the value zero	-34
		Difference between rate	5
		difference of value at 1% rate	-6.88476611
		rate to be decreased for value 24	-3.4859572
		IRR ( 30-3.48)	26.5140428