Internal Rate of Return (IRR) problem

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  • Avatar of nokia
    nokia
    Moderator
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    Hi,
    If a project has the following cash flows:

    Yr0 (100)
    Yr1 25
    Yr2 25
    Yr3 30

    What would be its IRR and how would we calculate that?


    Avatar of johnmoffat
    John Moffat
    Keymaster
    • Topics: 3
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    There is no IRR. (In theory there is, but it is negative and would be meaningless).

    The reason is that that the NPV is negative whatever the rate of interest is (even if interest rate was zero, the NPV would be negative), and therefore the project is never worth accepting.


    Avatar of nokia
    nokia
    Moderator
    • Topics: 1
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    Ok… But isn’t there any way to calculate that negative IRR? How does excel calculates that?


    Avatar of johnmoffat
    John Moffat
    Keymaster
    • Topics: 3
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    You can approximate it the normal way by making two guesses.

    I don’t know about excel – I never use excel for it because I am only ever doing it for exam purposes :-)


    Avatar of nokia
    nokia
    Moderator
    • Topics: 1
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    :) Ok thanks alot. i have calculated that finally

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