5th Edition

ISBN: 9781305250901

Author: Wayne L. Winston, S. Christian Albright

Publisher: Cengage Learning

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Forecasting is the process of predicting the future based on the past and the present data and circumstances. In other words, forecasting is the act of making a detailed analysis of future events based on the decisions made in the past as well as the pre…

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Textbook Question

Chapter 2, Problem 44P

The IRR is the discount rate r that makes a project have an NPV of $0. You can find IRR in Excel with the built-in IRR function, using the syntax =IRR(range of cash flows). However, it can be tricky. In fact, if the IRR is not near 10%, this function might not find an answer, and you would get an error message. Then you must try the syntax =IRR(range of cash flows, guess), where “guess" is your best guess for the IRR. It is best to try a range of guesses (say, −90% to 100%). Find the IRR of the project described in Problem 34.

34. Consider a project with the following cash flows: year 1, −$400; year 2, $200; year 3, $600; year 4, −$900; year 5, $1000; year 6, $250; year 7, $230. Assume a discount rate of 15% per year.

a. Find the project’s NPV if cash flows occur at the ends of the respective years.
b. Find the project’s NPV if cash flows occur at the beginnings of the respective years.
c. Find the project’s NPV if cash flows occur at the middles of the respective years.

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Chapter 2, Problem 43P

Chapter 2, Problem 45P

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Chapter 2 Solutions

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Solution Summary: The author explains that the Internal Rate of Return (IRR) is a metric used in the capital budgeting process to estimate the profitability of potential investments made by an organization.

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