Problem 9.27 Your answer is incorrect. Try again. Compute the IRR on the followi

Question

Problem 9.27 Your answer is incorrect. Try again. Compute the IRR on the following cash flow streams: a. An initial investment of $19,289 followed by a single cash flow of $32,190 in year 6. (Round intermediate calculations to 4 decimal places, e.g. 1.2512 and final answer to 2 decimal places, e.g 15.25%.) IRR 9.00 % b. An initial investment of $1,215,946 followed by a single cash flow of $1,884,100 in year 4. (Round intermediate calculations to 4 decimal places, e.g. 1.2512 and final answer to 2 decimal places, e.g 15.25%.) IRR 11.60,% c. An initial investment of $2,271,144 followed by cash flows of $1,971,500 and $1,051,100 in years 2 and 4, respectively. (Round answer to 2 decimal places, e.g. 15.25%.) IRR 22.86 11% Click if you would like to Show Work for this question: Open Show Work LINK TO TEXT VIDEO: CONCEPTS IN ACTION Question Attempts: 1 of 2 used SAVE FOR LATER SUBMIT ANSWER

Explanation / Answer

a. Internal rate of return is that rate at which the PV of Cash Flows equals the Initial Investment

Initial Investment = $19289   

Cash Flows at the end of 6th year = $32190

Or, Initial Investment = Present Value of Cash Flows

Or, $19289 = $32190/ (1+ discount rate) ^ no. of years

Or, (1+ discount rate) ^ 6 = $32190/$19289 = 1.66883

Or, Discount Rate = {(1.66883) ^ (1/6) -1}100= 8.90%

b. Initial Investment = $12,15,946             

Cash Flows at the end of 4th year = $18, 84, 100

Or, Initial Investment = Present Value of Cash Flows

Or, $1215946= $1884100/ (1+ discount rate) ^ no. of years

Or, (1+ discount rate) ^ 4 = $1884100/$1215946 = 1.549493

Or, Discount Rate = {(1.549493) ^ (1/4) -1}100= 11.57%

c. Initial Investment = $2271144

Cash Flows at the end of 2nd Year = $1971, 500

Cash Flows at the end of 4th year = $10, 51, 100

Or, Initial Investment = Present Value of Cash Flows

$2271, 144 = $1971500/ (1+rate) ^2 + $10, 51, 100/ (1+rate) ^ 4

Let us suppose r= 15%

2271,144 = 20, 91, 707.10

Let us suppose r = 10%

2271,144 = 2347254.29

Now, interpolating the results we get,

(2347254.29-2091707.10)/ (2347254.29-2271144) = (10%- 15%)/ (10%- r %)

255547.19/ 76110.29 = -5%/ (10-r)%

3.3576 = -5%/ (10-r)

(10-r)% = -1.4892

R = 11.49% ~ 11.50%

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.