The Everett Co. is looking a project with an outlay of $810 which will have a positive cash flow at t = 3 of $1,011 with no other cash flows at t = 1 and t = 2. What is the project internal rate of return as a percent to two places?
The Everett Co. is looking a project with an outlay of $810 which will have a positive cash flow at t = 3 of $1,011 with no other cash flows at t = 1 and t = 2. What is the project internal rate of return as a percent to two places?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
The Everett Co. is looking a project with an outlay of $810 which will have a positive cash flow at t = 3 of $1,011 with no other cash flows at t = 1 and t = 2. What is the project
Expert Solution
Step 1
IRR is the rate at which NPV is zero
Step 2
Alternatively,
810 = 1011/(1+IRR)^3
810 *(1+IRR)^3 = 1011
(1+IRR)^3 = 1011/810
(1+IRR) = (1011/810)^(1/3)
IRR = (1011/810)^(1/3) -1
IRR = 1.076685 -1
IRR = 0.076685
IRR = 7.67%
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