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# EXERCISE - Calculating the Internal Rate of Return

1: Calculate
Calculate the
thenpv
npv of
of the
theproject.
project.
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
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
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