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Internal Rate of Return

The document shows a calculation of internal rate of return (IRR) for a project with $2 million initial capital outflow and $50,000 monthly inflows for 12 months, culminating in a $2.5 million payment at month 12. The IRR is calculated as 62.888% annually or 4.14958% monthly. A net present value (NPV) calculation at 0% discount rate matches the zero NPV, validating the IRR calculation.

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66 views

Internal Rate of Return

The document shows a calculation of internal rate of return (IRR) for a project with $2 million initial capital outflow and $50,000 monthly inflows for 12 months, culminating in a $2.5 million payment at month 12. The IRR is calculated as 62.888% annually or 4.14958% monthly. A net present value (NPV) calculation at 0% discount rate matches the zero NPV, validating the IRR calculation.

Uploaded by

Dreamer_Shopno
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLSX, PDF, TXT or read online on Scribd
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Calculation of IRR

Cash Flow Frequency: 12 Monthly

Monthly Monthly Income Net Monthly


Number Flow Capital Flow Flow
0 $0.00 ($2,000,000.00) ($2,000,000.00)
1 $50,000.00 $50,000.00
2 $50,000.00 $50,000.00
3 $50,000.00 $50,000.00
4 $50,000.00 $50,000.00
5 $50,000.00 $50,000.00
6 $50,000.00 $50,000.00
7 $50,000.00 $50,000.00
8 $50,000.00 $50,000.00
9 $50,000.00 $50,000.00
10 $50,000.00 $50,000.00
11 $50,000.00 $50,000.00
12 $50,000.00 $2,500,000.00 $2,550,000.00

IRR of Net Quarterly Flow 4.14958% Monthly


IRR p.a. 62.88844% per annum
Check NPV ($0.00)
1 Annual
2 Semi-Annual
4 Quarterly
12 Monthly
13 Four Weekly
26 Bi-Weekly
52 Weekly
365 Daily
366 Leap Daily
IRR to Calculate Geometric Average Growth

Year Index Growth P.A. 2003-2004 2004-2005 2005-2006 2006-2007


2003 100.00 -100.00 -100.00 -100.00 -100.00
2004 105.21 5.21% 105.21 0 0 0
2005 110.32 4.86% 110.32 0 0
2006 116.56 5.66% 116.56 0
2007 119.94 2.90% 119.94

Average Growth Since 2007 5.210% 5.033% 5.241% 4.650%


4
Checking IRR & NPV Using Sum of PV Approach

Discount Rate for NPV 10%

Period Flow PV IRR Check PV NPV Check


0 $ (100,000.00) $ (100,000.00) $ (100,000.00)
1 14,000.00 13,570.24 12,727.27
2 14,000.00 13,153.68 11,570.25
3 14,000.00 12,749.90 10,518.41
4 14,000.00 12,358.52 9,562.19
5 14,000.00 11,979.15 8,692.90
6 15,000.00 12,440.82 8,467.11
7 15,000.00 12,058.92 7,697.37
8 15,000.00 11,688.75 6,997.61

NPV $ (23,766.89) $ - $ (23,766.89)


IRR 3.167%

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