Question 17 5 pts Maxwell Feed Seed is considering a projec

Question 17 5 pts Maxwell Feed & Seed is considering a project that has an initial cash outflow of $7,050. Expected cash inflows are $2,000 in year 1, $2,025 in year 2, $2,050 in year 3, $2,075 in year 4, and $2,100 in year 5. What is the project\'s IRR? Your answer should be between 9.52 and 16.20, rounded to 2 decimal places, with no special characters. F5 F6 F7 5 7 8 9

Solution

IRR is the rate at which project\'s net present value is zero. a. Calculation of net present value at 10% : Year Cash flow Discount factor Present Value a b c=1.1^-a d=b*c 0 $        -7,050          1.0000 $         -7,050 1 $          2,000          0.9091 $          1,818 2 $          2,025          0.8264 $          1,674 3 $          2,050          0.7513 $          1,540 4 $          2,075          0.6830 $          1,417 5 $          2,100          0.6209 $          1,304 Total $              703 b. Calculation of net present value at 20% : Year Cash flow Discount factor Present Value a b c=1.2^-a d=b*c 0 $        -7,050          1.0000 $         -7,050 1 $          2,000          0.8333 $          1,667 2 $          2,025          0.6944 $          1,406 3 $          2,050          0.5787 $          1,186 4 $          2,075          0.4823 $          1,001 5 $          2,100          0.4019 $              844 Total $            -946 c. Calculation of IRR IRR = L+(H-L)*(A/(A-B)) Where, = 10%+10%*(703/1649) L 10% = 14.26% H 20% H-L 10% A $        703 B $      -946 A-B $    1,649