Compute the internal rate of return for the cash flows of th

Compute the internal rate of return for the cash flows of the following two projects (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.):

Solution

IRR is the rate at which NPV is zero. We can calculate the IRR by putting the following values in the financial calculator:

For Project A

CF0 = -$7,300; C01 = $2,800; F01 = 1; C02 = $3,600; F02 = 1; C03 = $2,400; F03 = 1; Press IRR, then CPT, which gives10.19%.

For Project B

CF0 = -$4,900; C01 = $1,600; F01 = 1; C02 = $3,300; F02 = 1; C03 = $2,000; F03 = 1; Press IRR, then CPT, which gives18.53%.