Nu Things, Inc., is considering investing in a business venture with the followi
ID: 1094813 • Letter: N
Question
Nu Things, Inc., is considering investing in a business venture with the following anticipated cash flow results: EOY Cash Flow
0 -$70,000
1 $20,000
2 $19,000
3 $18,000
4 $17,000
5 $16,000
6 $15,000
7 $14,000
8 $13,000
9 $12,000
10 $11,000
11 $10,000
12 $9,000
13 $8,000
14 $7,000
15 $6,000
16 $5,000
17 $4,000
18 $3,000
19 $2,000
20 $1,000
Assume MARR is 20 percent per year. Based on an internal rate of return analysis:
Nu Things, Inc., is considering investing in a business venture with the following anticipated cash flow results: EOY Cash Flow 0 -$70,000 1 $20,000 2 $19,000 3 $18,000 4 $17,000 5 $16,000 6 $15,000 7 $14,000 8 $13,000 9 $12,000 10 $11,000 11 $10,000 12 $9,000 13 $8,000 14 $7,000 15 $6,000 16 $5,000 17 $4,000 18 $3,000 19 $2,000 20 $1,000 Assume MARR is 20 percent per year. Based on an internal rate of return analysis: Determine the investment worth: % (IRR)Explanation / Answer
Hi,
Please find the detailed answer as follows:
To calculate IRR, you need to put the value of NPV as 0 and solve for r as follows:
NPV = 0 = -70000 + 20000/(1+r)^1 + 19000/(1+r)^2 + 18000/(1+r)^3 + 17000/(1+r)^4 + 16000/(1+r)^5 + 15000/(1+r)^6 + 14000/(1+r)^7 + 13000/(1+r)^8 + 12000/(1+r)^9 + 11000/(1+r)^10 + 10000/(1+r)^11 + 9000/(1+r)^12 + 8000/(1+r)^13 + 7000/(1+r)^14 + 6000/(1+r)^15 + 5000/(1+r)^16 + 4000/(1+r)^17 + 3000/(1+r)^18 + 2000/(1+r)^19 + 10000/(1+r)^20
Solving for r, we get IRR as: 22.27%
Answer is 22.27%.
Thanks.
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