A project has an initial outlay of $1,939. It has a single cash flow at the end of year 5 of $4,276. What is the internal rate of return (IRR) for the project?
Round the answer to two decimal places in percentage form.
Thank you for the opportunity to help you with your question!
From the NPV formula (see wikipedia) IRR is obtained by solving the equation
1939/(1+r)^0-4276/(1+r)^6=0 (calculation to end of 5th year or beginning of 6th year)
where r= IRR
This is most easily solved in Excel by applying the function = IRR ( array, guess)
I used array values (range of cells in excel) = 1939, 0, 0, 0,0, -4276 (is the cash flow at the begining of each year)
guess = 1
We get r=17%
Correction, the formula above should be
1939/(1+r)^0-4276/(1+r)^5=0 (with a power of 5 instead of 6 ). Result is OK.
How would I compute it using the IRR on excel?
(1) Enter the 6 numbers 1939, 0, 0, 0,0, -4276 into 6 consecutive cells in the worksheet, say C1:C6
(2) Enter the following formula in another cell: =IRR(C1:C6, 10%) The result will be the answer (17%). The 10% is just an initial guess - it could be anything like 80% or 50% and it'll work.
Content will be erased after question is completed.
Enter the email address associated with your account, and we will email you a link to reset your password.
Forgot your password?