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Compute Internal Rate of Return in Excel

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Home security Systems is considering an acquisition of some computer equipment costing $40,000. The equipment is expected to increase annual cash inflows for the next three years as follows:

Year Increase in Cash Flow
1 $20,000
2 18,000
3 13,000

What is the internal rate of return using Excel. If the cost of capital is 12%, should the equipment be purchased? Explain.

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Solution Summary

The solution is in Excel attached and uses the function IRR to solve and then interprets the result.

Solution provided by:
Carol Sargent, PhD
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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