Ch7 IRR Handout-2

# Ch7 IRR Handout-2 - A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15...

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 AB C D E F G H I MARR= 15% IRR= 23.1% Yr Cash Flow Interest Rate Interest PB 0 \$4.0 \$4.00 1 \$3.5 23.1% \$0.92 \$1.42 2 \$2.5 23.1% \$0.33 \$0.75 3 \$1.5 15.0% \$0.11 \$2.36 4 \$0.5 15.0% \$0.35 \$3.21 5 \$0.5 15.0% \$0.48 \$3.19 6 \$1.5 15.0% \$0.48 \$2.17 7 \$2.5 15.0% \$0.33 \$0.00 =IF(E14>0,\$E\$3,\$E\$4) =E14*C15 =E14+B15+D15 IRR of an oil well using ERR=MARR (\$M) \$5.00 \$0.00 \$5.00 0 1 2 3 4 5 6 7 Project Balance 19 20 21 22 23 24 4.73% =IRR(B6:B13) {not relavant} 37.20% =IRR(B6:B13,0.4) {not relavant}

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Summary of the IRR Decision Process for: an independent alternative’s cash flow or the flow for an incremental alternative (between two M.E. alternatives) 1) Be sure the first non-zero flow is negative. This guarantees an investment, so the sense of the
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Ch7 IRR Handout-2 - A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15...

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