Cf1 ico 1 irr1 44 cf2 1 irr2 certified

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: estment project with the project’s initial cash outflow. CF1 ICO = (1 + IRR)1 44 + CF2 (1 + IRR)2 +...+ Certified Financial Controller CFC 22 CFn (1 + IRR)n IRR Solution $40,000 = $10,000 + $12,000 + (1+IRR)1 (1+IRR)2 $15,000 $10,000 $7,000 + + (1+IRR)4 (1+IRR)5 (1+IRR)3 Find the interest rate (IRR) that causes the discounted cash flows to equal $40,000. 45 Certified Financial Controller CFC IRR Solution (Try 10%) 10%) $40,000 = $10,000(PVIF10%,1) + $12,000(PVIF10%,2) + $15,000(PVIF10%,3) + $10,000(PVIF10%,4) + $ 7,000(PVIF10%,5) $40,000 = $10,000(0.909) + $12,000(0.826) + 40, $15,000(0.751) + $10,000(0.683) + $ 7,000(0.621) $40,000 = $9,090 + $9,912 + $11,265 + 40, $6,830 + $4,347 = $41,444 41, [Rate is too low!!] 46 Certified Financial Controller CFC 23 IRR Solution (Try 15%) 15%) $40,000 = $10,000(PVIF15%,1) + $12,000(PVIF15%,2) + $15,000(PVIF15%,3) + $10,000(PVIF15%,4) + $ 7,000(PVIF15%,5) $40,000 = $10,000(0.870) + $12,000(0.756) + 40, $15,000(0.658) + $10,000(0.572) + $ 7,000(0.497) $40,000 = $8,700 + $9,072 + $9,870 + 40, $5...
View Full Document

Ask a homework question - tutors are online