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Internal Rate of Return

Cash Flow analysis indicates the following:
Year 0 Machine A = -2000 Machine B =-2000
Year 1 Machine A = 0 " " = 832
Year 2 Machine A = 0 " " = 832
Year 3 Machine A = 0 " " = 832
Year 4 Machine A = 3877 " " = 832

What is the internal rate of return for each machine?

IRRA = ?% IRRB = ?%

Solution Preview

The Internal Rate of Return (IRR) is the discounting rate that makes the sum of discounted cash flows equal to the initial investment ( same as saying that the NPV is zero). The method to find IRR is the trial and error method. You started with one discount rate and find the sum of discounted cash inflows. If the sum is higher than intial investment, you need to ...

Solution Summary

The solution explains how to calculate the IRR.

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