Question

You are evaluating five different investments, all of which involve an upfront outlay of cash. Each investment will provide a single cash payment back to you in the future. Details of each investment appears here: . Calculate the IRR of each investment. State your answer to the nearest basis point (i.e., the nearest 1/100th of 1%, such as 3.76%).

Answer 1

A

IRR = 8.27%

B

IRR = 4.69%

C

IRR = 10.77%

D

IRR = 9.47%

E

IRR = 4.81%

Step-by-step explanation:

Here is the table containing information on the investments

Initial investment value Future Investment Value Year

$1,100 $2,637 11 $9,500 $13,091 7 $400 $1,855 15 $3,200 $5,030 5 $6,000 $9,598 10

Internal rate of return is the discount rate that equates the after-tax cash flows from an investment to the amount invested

IRR can be calculated with a financial calculator

A

Cash flow in year 0 = $-1,100

Cash flow from year 0 - 10 = 0

Cash flow in year 11 = $2,637

IRR = 8.27%

B

Cash flow in year 0 = $-9,500

Cash flow from year 0 - 6 = 0

Cash flow in year 7 = $13,091

IRR = 4.69%

C

Cash flow in year 0 = $-400

Cash flow from year 0 - 14 = 0

Cash flow in year 15 = $1,855

IRR = 10.77%

D

Cash flow in year 0 = $-3200

Cash flow from year 0 - 4 = 0

Cash flow in year 5 = $5,030

IRR = 9.47%

E

Cash flow in year 0 = $-6000

Cash flow from year 0 - 9 = 0

Cash flow in year 10 = 9598

IRR = 4.81%

To find the IRR using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the IRR button and then press the compute button.