Ch13 Non-Normal Projects and IRR

Ch13 Non-Normal Projects and IRR - Financial Management...

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1 Financial Management Chapter 13 Non-Normal Projects and IRR ADM 2350 Prepared by Dr. William F. Rentz, Ph.D., LIFA
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2 IRR Difficulties: Chapter 13 The traditional IRR rule is incorrect when cash inflows are followed by cash outflows – a non-normal project When there are multiple sign changes, there can be multiple positive IRRs and IRR is useless
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3 Example of Non-Normal Project Project A: $1M inflow followed by outflows of $162,745 for 10 years Project B: $1M inflow followed by outflows of $135,868 for 10 years
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4 Calculation of IRR for Project A Consult a PVIFA table to see that r = 10%. With a BAII+, P/Y = C/Y = 1, N = 10, PV = 1,000,000, PMT = -162,745, FV = 0, CPT I/Y = 10.00. 145
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Ch13 Non-Normal Projects and IRR - Financial Management...

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