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Chapter 7

Question 14

Calculate the internal rate of return (IRR) of the following cash flows. The NPV
at 10% is (431).

Timing Cash flow

0 (9,000)
1 4,000
2 2,500
3 2,000
4 2,000

Timing Cash flow Discount factor 5% Present value

0 (9,000) 1 (9,000)
1 4,000 0.952 3,808
2 2,500 0.907 2,268
3 2,000 0.864 1,728
4 2,000 0.823 1,646

NPV = 450

IRR = 5 + (450/(450 + 431)) × (10 – 5)

IRR = 5 + 0.5108 × 5

IRR = 7.6%

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