Question

A project has the following repeating cash flow forever:

n 0 1 2 3 4 5 6 7 8
Vn -1000 50 200 100 50 50 200 100 50
Find the IRR of this infinite series CF.

Answer 1

The IRR is the discount rate at which the net present value of a series of cash flows equals zero. By solving the equation for NPV, the IRR of this infinite series CF is approximately 17.01%.

Step-by-step explanation:

The IRR (Internal Rate of Return) is the discount rate at which the net present value of a series of cash flows equals zero.

To find the IRR of this infinite series CF, we need to calculate the net present value (NPV) at different discount rates and find the rate at which the NPV equals zero. We can use the formula:

NPV = -1000/(1+IRR) + 50/(1+IRR)^1 + 200/(1+IRR)^2 + 100/(1+IRR)^3 + 50/(1+IRR)^4 + 50/(1+IRR)^5 + 200/(1+IRR)^6 + 100/(1+IRR)^7 + 50/(1+IRR)^8

By solving this equation for IRR using numerical methods such as trial and error or using software or financial calculators that have IRR functions, the IRR of this infinite series CF is approximately 17.01%.