The IRR is the discount rate r that makes a project have an NPV of $0. You can find IRR in Excel with the built-in IRR function, using the syntax =IRR(range of cash flows). However, it can be tricky. In fact, if the IRR is not near 10%, this function might not find an answer, and you’ll get an error message. Then you must try the syntax =IRR(range of cash flows, guess), where “guess” is your best guess for the IRR. It’s best to try a range of guesses (say, 90% to 100%). Find the IRR of the project described in Problem 34.
Problem 34
Consider a project with the following cash flows: year 1, -$400; year 2, $200; year 3, $600; year 4, -$900; year 5, $1000; year 6, $250; year 7, $230. Assume a discount rate of 15% per year.
a. Compute the project’s NPV if cash flows occur at the ends of the respective years.
b. Compute the project’s NPV if cash flows occur at the beginnings of the respective years.
c. Compute the project’s NPV if cash flows occur at the middles of the respective years.