Determine the IRR on the following projects: a. An initial outlay of $9,000 resu

Question

Determine the IRR on the following projects: a. An initial outlay of $9,000 resulting in a free cash flow of $1,866 at the end of each year for the next 9 years. b. An initial outlay of $9,000 resulting in a free cash flow of $2,127 at the end of each year for the next 18 years. c. An initial outlay of $9,000 resulting in a free cash flow of $1,086 at the end of each year for the next 12 years. d. An initial outlay of $9,000 resulting in a free cash flow of $2,935 at the end of each year for the next 5 years. a. What is the IRR of a project with an initial ourlay of $9,000 resulting in a free cash flow of $1,866 at the end of each year for the next 9 yeas? b. What is the IRR of a project with an initial ourlay. of $9,000 resulting in a free eash flow of $2,127 at the end of each year for the next 18 year?

Explanation / Answer

1

Calculation of IRR of the project:

Year

Cash Flows

0

$       (9,000)

1

$         1,866

2

$         1,866

3

$         1,866

4

$         1,866

5

$         1,866

6

$         1,866

7

$         1,866

8

$         1,866

9

$         1,866

IRR =

14.70%

(using excel formula "=IRR()"

2

Calculation of IRR of the project:

Year

Cash Flows

0

$       (9,000)

1

$         2,127

2

$         2,127

3

$         2,127

4

$         2,127

5

$         2,127

6

$         2,127

7

$         2,127

8

$         2,127

9

$         2,127

10

$         2,127

11

$         2,127

12

$         2,127

13

$         2,127

14

$         2,127

15

$         2,127

16

$         2,127

17

$         2,127

18

$         2,127

IRR =

23.07%

(using excel formula "=IRR()"

1

Calculation of IRR of the project:

Year

Cash Flows

0

$       (9,000)

1

$         1,866

2

$         1,866

3

$         1,866

4

$         1,866

5

$         1,866

6

$         1,866

7

$         1,866

8

$         1,866

9

$         1,866

IRR =

14.70%

(using excel formula "=IRR()"

2

Calculation of IRR of the project:

Year

Cash Flows

0

$       (9,000)

1

$         2,127

2

$         2,127

3

$         2,127

4

$         2,127

5

$         2,127

6

$         2,127

7

$         2,127

8

$         2,127

9

$         2,127

10

$         2,127

11

$         2,127

12

$         2,127

13

$         2,127

14

$         2,127

15

$         2,127

16

$         2,127

17

$         2,127

18

$         2,127

IRR =

23.07%

(using excel formula "=IRR()"

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