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A project requires an investment of $24000at time 0,and generates an inflow of $5000 per year for 8 years(with the first inflow occurring in one year time).What is the IRR (to the nearest)?
ans is 13% how?For an NPV of zero, the PV of the inflows must equal 24,000.
therefore 5,000 x (the 8 year annuity factor at the IRR) = 24,000
Therefore the 8 year annuity factor = 24,000/5,000 = 4.800
If you look along the 8 year row in the annuity tables, the figure coming closest to 4.800 is 13% (which gives 4.799)
Alternatively you could have made two guesses as usual, but this would have taken longer and is only ever an approximation.
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