Determine to the nearest percent the IRR of the following projects: a. An initia

Question

Determine to the nearest percent the IRR of the following projects: a. An initial outlay of $10,000 resulting in a free cash flow of $2.000 at the end of year 1, $5,000 at the end of year 2, and $8,000 at the end of year 3. b. an initial outlay of $10,000 resulting in a free cash flow of $8,000 at the end of year 1, $5,000 at the end of year 2, and $2,000 at the end of year 3. c. an initial outlay of $10,000 resulting in the free cash flow of $2,000 at the end of years 1 through 5 and $5,000 at the end of year 6.

Explanation / Answer

Year a b c PV of Cash flow A 0 -10000 -10000 -10000 A/(1+r)^0 B 1 2000 8000 2000 B/(1+r)^1 C 2 5000 5000 2000 C/(1+r)^2 D 3 8000 2000 2000 D/(1+r)^3 E 4 2000 E/(1+r)^4 F 5 2000 F/(1+r)^5 G 6 5000 G/(1+r)^6 NPV 0 0 0 Sum = 0 IRR 18.7875% 30.2003% 11.1977% r

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