and set the NPV equal to zero 1 2 N 1 2 N CF CF CF NPV CF 1 r 1 r 1 r The rate

And set the npv equal to zero 1 2 n 1 2 n cf cf cf

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and set the NPV equal to zero 1 2 N 0 1 2 N CF CF CF NPV = CF + + +...+ ( 1 + r ) ( 1 + r ) ( 1 + r ) The rate that forces NPV to equal zero is the IRR = + = N 0 t t t IRR) (1 CF 0
Internal Rate of Return (IRR) S 1 2 3 4 $500 $400 $300 $100 NPV = -$1000+ + + + 0 ( 1 + IRR ) ( 1 + IRR ) ( 1 + IRR ) ( 1 + IRR ) = S Plug in an IRR =14.489% to force the NPV to equal zero