Self-Study Practice 5: Computing IRR Using Excel

Lisun Company produces a variety of gardening tools and aids.  The company is examining the
possibility of investing in a new production system that will reduce the costs of the current
system.  The new system will require a cash investment of P4,607,200 and will produce net
cash savings of P800,000 per year.  The system has a projected life of 9 years.

Required:
Calculate the IRR for the new production system.
PV Factor for Internal Rate of Return = Cash Investment / Net Cash Savings
PV Factor for Internal Rate of Return = P4,607,200 / P800,000
PV Factor 5.76

Year Cash Flows

0 - 4,607,200.00
1 800,000.00
2 800,000.00
3 800,000.00
4 800,000.00
5 800,000.00
6 800,000.00
7 800,000.00
8 800,000.00
9 800,000.00
IRR 10%