Final answer:
The question seeks to find the internal rate of return (IRR) for a given cash flow profile where the cash flows change sign more than once, indicating potential for multiple IRRs. Calculating the exact IRR requires setting the NPV to zero and solving for the discount rate, which might need numerical methods or a financial calculator.
Step-by-step explanation:
Internal Rate of Return (IRR)
The question provides a cash flow profile and asks to determine the internal rate of return (IRR) for a project with a minimum acceptable rate of return (MARR) of 10% per year. The cash flow profile presented is as follows: Year 0 (NCF0): -$100, Year 1 (NCF1): $25, Year 2 (NCF2): $25, Year 3 (NCF3): $60, Year 4 (NCF4): -$30, Year 5 (NCF5): $60, Year 6 (NCF6): $25.
IRR is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. To find the IRR, the calculation would set the NPV equation to zero and solve for the rate (r) that satisfies the equation: NPV = 0 = (-$100) / (1 + r)^0 + ($25) / (1 + r)^1 + ($25) / (1 + r)^2 + ($60) / (1 + r)^3 + (-$30) / (1 + r)^4 + ($60) / (1 + r)^5 + ($25) / (1 + r)^6. Since analytical solutions can be complex for non-linear equations and often require trial and error or numerical methods, finding the exact IRR may require a financial calculator or software. However, a numerical approach could involve guessing a rate and adjusting it until the NPV becomes close to zero.
Since there are potential cash flow sign changes more than once, the project might have multiple IRRs or none. In situations with multiple IRRs, the decision rule is to accept the project if at least one of the IRRs is greater than the MARR, but further analysis is needed to choose the best course of action. It is crucial to perform a more detailed analysis considering NPV at different discount rates, employing modified IRR (MIRR), or constructing a detailed financial model to provide a better investment decision basis.