cfc session 7 ch8

# Cf1 ico 1 irr1 44 cf2 1 irr2 certified

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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...
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