Revised_page_135_on_IRR_F10

# Revised_page_135_on_IRR_F10 - is less than 12 Try IRR = 11...

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Example of Even GashFlowsfor IRR: What is the IRR of a project with an investment of \$500,000 followed by 5 years of equal annual cash flows of \$150,000? _l_l_l_l_l l_ t- 012345years cash flows:(\$000) -500 150 150 150 150 150 PV = \$150,000 x PVIFA t=5' rRR and C = \$500,000 so IRR will be where \$500,000 = \$150,000 x PVIFA t=5' rRR 500,000/150,000 = 3.3333, thiscorresponds to an interest rate of about 15%. -500,000=PV, 150,000=PMT, 5=n, O=FV, CPT lA/ andget 15.2% Example of Uneven Gash Flows - using Trial and Error for IRR: Similar example, withuneven cash flows for 3 years as follows: t_t_t_l 0123years cash flows: -500 200 250 150 (\$ooo) 500,000= i zoo,ooo + 250.000 +150,000 I L 1t *rnn; a.rnR)t (1. tRRfl By Trial and Error: Try IRR = 12o/o RHS = 9.692 which
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Unformatted text preview: is less than 12% Try IRR = 11% RHS = 9.856 still less than 11% Try IRR = 10o/o RHS = 10.022 Therefore IRR = 10o/o approximately. By Calculator: There are too many different versions on this on various calculators. Note you need to have one negative value among the cash flows for this to work, and there are other features you need to know about exactly how your calculator does this. However, try: on BA ll Plus: on Sharp: first clear all registers:press [CF] [2ND] [CLR WORK] l1ncll tcFlt2ndl tcAI tENrl t, enter -500,000 IENTER] [l ] enter 200,000 IENTER] [l ] tl l enter 250,000 [ENTER] enter 150,000 IENTER] rl trl tl-500,000 [cF] 200,000 [cFI 250,000 [cF] 150,000 [cF] ICOMPIilRRI = 10.13 [RR] [CPT] answer is: 10.13o/o 135...
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