Determine the IRR on the following projects: a. An initial outlay of s10,000 res

Question

Determine the IRR on the following projects: a. An initial outlay of s10,000 resulting in a single free cash flow of S17,182 after 8 years. b. An initial outlay of $10,000 resulting in a single free cash flow of $48,077 after 10 years. c. An initial outlay of S10,000 resulting in a single free cash flow of S114,943 after 20 years. d. An initial outlay of S10,000 resulting in a single free cash flow of S13,680 after 3 years. SOLUTION a. An initial outlay of $10,000 resulting in a single free cash flow of S17,182 after 8 years Initial outlay Future value Years IRR S10,000 S17,182 b. An initial outlay of S10,000 resulting in a single free cash flow of $48,077 after 10 years. Initial outlay Future value Years IRR 1. Start Excel. Download and open the workbook named: Keown Martin_Petty Problem_10-1_Start. Important note: All calculations must be shown using cell references. Do NOT enter absolute numbers in the cells. 2. In cell 811, use the function RATE to calculate the IRR for the data in part (a). (1 point) 3. To calculate the IRR for the data in parts (b) thru (d), copy cell 811 and paste onto cells 817, B23 and B29. (3 points) 4. Save the workbook. Close the workbook and then exit Excel. Submit the workbook as directed. S10,000 S48,077 10 . An initial outlay of S10,000 resulting in a single free cash flow of S114,943 after 20 years. Initial outlay Future value Years IRR S10,000 SI i 4.943 20 d. An initial outlay of S10,000 resulting in a single free cash flow of S13,680 after 3 years. Initial outlay Future value Years IRR S10,000 S13,680

Explanation / Answer

Since these all are single cash flows IRR can be calculated using rate function of excel:

Formula:
a)=RATE(8,0,-10000,17182)
=7.00%

b)=RATE(10,0,-10000,48077)
=17.00%

c)=RATE(20,0,-10000,114943)
=12.99%

d)=RATE(3,0,-10000,13680)
=11.01%

=H5+NPV(0.09,H6:H11)
Where H5 is initial cash flow

Fijisawa Inc Year Cash flow 0 -1950000 1 450000 2 450000 3 450000 4 450000 5 450000 6 450000 NPV $ 68,663.37 PI 1.03521198 IRR 10.17%

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