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    Nader Tawbeh
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    The document shows calculations to determine the internal rate of return (IRR) of a cash flow series. It first defines the present value (PV) formula and shows that PV equals the value of annuity (VAN) plus the initial cash flow divided by the discount rate. It then works through an example cash flow series to calculate the VAN and determines the IRR that makes the PV equal to zero is 15.25%.

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    The document shows calculations to determine the internal rate of return (IRR) of a cash flow series. It first defines the present value (PV) formula and shows that PV equals the value of annuity (VAN) plus the initial cash flow divided by the discount rate. It then works through an example cash flow series to calculate the VAN and determines the IRR that makes the PV equal to zero is 15.25%.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    11 views1 page

    Untitled

    Uploaded by

    Nader Tawbeh
    The document shows calculations to determine the internal rate of return (IRR) of a cash flow series. It first defines the present value (PV) formula and shows that PV equals the value of annuity (VAN) plus the initial cash flow divided by the discount rate. It then works through an example cash flow series to calculate the VAN and determines the IRR that makes the PV equal to zero is 15.25%.

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    © All Rights Reserved
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    of 1

    IP = ∑ CF (1+i)^-n / I0

    IP = ∑ CF (1+i)^-n – I0 + I0 / I0

    IP = VAN + I0/I0

    IP = VAN/I0 + 1

    1.18 = VAN/800 + 1

    VAN = 144

    VAN = ∑ CF (1+i)^-n – I0
    −4
    1−(1+t )
    −800
    144 = 297.80 t
    −4
    1−(1+t )
    =3 . 169913⇒ t=9 .999 %=10
    t %

    −4
    1−(1+t )
    −800
    297.80 t =0

    1 1
    [297 . 8(1+t )−1 +297 . 8(1+t )−2 +. ..+297(1+t )−4 ]= [600(1+t )−1 +.. .+70(1+t )−4 ]
    800 1000
    −1 −2 −3 −4
    182(1+t ) +22 .2(1+t ) −57 . 8(1+t ) −241. 8(1+t ) =0
    t≈ 15.25 %

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