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EXERCISE - Calculating The Internal Rate of Return

1) The document provides information to calculate the internal rate of return (IRR) and net present value (NPV) of a project with an initial investment of ₹500 and positive cash flows over 5 years. 2) The NPV of the project is -₹67 and the IRR is 5%, indicating the project may not be profitable at an interest rate of 10%. 3) To determine if the project should be invested in, the document explains the IRR must be higher than the minimum acceptable rate of return while the NPV must be positive.

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Nipun Bajaj
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116 views

EXERCISE - Calculating The Internal Rate of Return

1) The document provides information to calculate the internal rate of return (IRR) and net present value (NPV) of a project with an initial investment of ₹500 and positive cash flows over 5 years. 2) The NPV of the project is -₹67 and the IRR is 5%, indicating the project may not be profitable at an interest rate of 10%. 3) To determine if the project should be invested in, the document explains the IRR must be higher than the minimum acceptable rate of return while the NPV must be positive.

Uploaded by

Nipun Bajaj
Copyright
© © All Rights Reserved
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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EXERCISE - Calculating the Internal Rate of Return

Task
Task 1:
1: Calculate
Calculate the
thenpv
npv of
of the
theproject.
project.
Task
Task 2:
2: what
what would
would be
be the
the implications
implications for
for the
thegiven
givenproject?
project? Should
Should you
you invest?
invest? Explain
Explainthe
thereasoning
reasoning behind
behindyour
your decision
decisio

interest rate: 10.00%

Year:
0 1 2 3 4
Cash flow -500 30 120 200 120
Net Present value -500 27 99 150 82

NPV -67
NPV ( Using direct
excel formula) ₹ -67

IRR 5%
he
hereasoning
reasoning behind
behindyour
your decision.
decision.

5
120
75
Formula sheet

Description Formula Remarks


NPV FV at the year N/ (1+i)^n -
IRR IRR() Excel based formula
interest rat 10.00%

Year:
0 1 2 3 4 5
Cash flow -500 30 120 200 120 120
Net Present value -500 27 99 150 82 75

NPV -67

NPV ( Using
direct excel
formula) -67
Concept name Description
Net Present value (NPV) Net present value (NPV) is the difference between the present value of cash
inflows and the present value of cash outflows over a period of time. NPV is used
in capital budgeting and investment planning to analyze the profitability of a
projected investment or project.

Internal rate of return (IRR) is a metric used in capital budgeting to estimate the
profitability of potential investments. Internal rate of return is a discount rate that
makes the net present value (NPV) of all cash flows from a particular project equal
Internal rate of return to zero. IRR calculations rely on the same formula as NPV does

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