Lecture 15G - The IRR

Reflect money going out of herbys pocket all the

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Unformatted text preview: e Sign to Reflect Money Going Out of Herby’s Pocket (All the numbers were positive reflecting money going to bankers) bankers) Now I Have the 3rd Cash Flow to Analyze Copy My Third Cash Flow (I’m going to Paste into Class Assistant) Assistant) The Values are Pasted into Class Assistant Class What Interest Rate to Use What We’ve looked at what peoples marginal We’ve rate of interest may be rate We’ve looked at feeling around with We’ve NPVs using different interest rates to see what happens what Another tool is the IRR Internal Rate of Return It is the interest rate that makes NPV zero The IRR The The IRR is popular because it tells you The what interest rate the investment makes what Can make complicated cash flow into an interest Can rate like is posted at a bank rate Very simple flows have a formula for Very IRR but most cash flow IRRs are computed iteratively until the NPV is 0 computed The way financial calculators do it The Excel has an IRR function that works same way. Where going to do manual iteration this time Lets Try 2% Lets rest Rate as a %, but do not use the % key during data entry mpounding periods in one year 12 0.001666667 (in decimal form) 2 Cash Flow Evaluation Index Values (Warning IRR and Payback may not function properly on unconventional cash flows) NPV 930.69482 A Positive NPV indicates too low a guess Lets Try 6% Lets est Rate as a %, but do not use the % key during data entry mpounding periods in one year 12 0.005 (in decimal form) 6 Cash Flow Evaluation Index Values (Warning IRR and Payback may not function properly on unconventional cas NPV 5...
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This note was uploaded on 02/02/2013 for the course ECON 361 taught by Professor Paulbradley during the Spring '13 term at SIU Carbondale.

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