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Cost Estimation: IRR and Future Worth

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Please help with the following problems.

1a. If you solve for an Internal Rate of Return (IRR) using a present worth equation, what value do you set the present worth to in order to solve the equation?

b. Jack Black, engineer extraordinaire, had just returned from taking a 30-page exam in his engineering management graduate program. His boss, Lucy (who certainly had a thing for diamonds and atmospheric sciences) asked Joe to evaluate a new project. Because Jack was quite discombobulated from his testing extravaganza he had a tough time. He persevered and brought Lucy two answers. A future worth that was > 0 and a present worth that was < 0. What should Lucy say to Jack?

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Solution Summary

This solution helps with questions regarding cost estimation. It helps calculate the rate of return and future worth.

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a. If it is an investment analysis, the cash flow in Year 0 or the initial investment would be set as the present worth. For example, if there a project that requires an initial outlay of $5,000 in Year 0 for which it returns ...

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Radhika Lakshmi, MPhil
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  • MCom, Annamalai University
  • IATA, International Air Transport Association
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