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The initial cash outlay in year 0 and resulting cash

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Reference no: EM13380601

The initial cash outlay (in year 0) and resulting cash inflows for three competing projects are presented below. Calculate the internal rate of return for each project (1-3) below using a formula in Excel. Which project would you choose? What if you only had $12,000 in year 0, and the cost of borrowing additional money was prohibitively high?



Project 1 Project 2 Project 3
Year 0  $               (8,000)  $             (25,000)  $             (10,000)
Year 1  $                3,000  $                1,000  $                1,000
Year 2  $                3,000  $                3,000  $                2,000
Year 3  $                3,000  $                8,000  $                3,000
Year 4  n/a   $              10,000  $                4,000
Year 5  n/a   $              20,000  $                5,000




IRR      




Using the same IRR formula, calculate the internal rate of return for project 4. Why is the result an error?


 Project 4
Year 0  $                5,000
Year 1  $                1,000
Year 2  $                2,000
Year 3  $                3,000
Year 4  $                4,000
Year 5  $                5,000


IRR  

Reference no: EM13380601

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