IRR and NPV

by Tracy Johnson
(Columbia, SC)

expected cash flow:
year Cash Flow
o -500,000
1 100,000
2 110,000
3 550,000

Discount rate 0, what is the net present value?

Discount rate 4, what is the net present value?

Discount rate 8, what is the net present value?

Discount rate 10, what is the net present value?

What is the internal rate of return?

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IRR and NPV

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Mar 23, 2010

IRR and NPV Solution
by: Dee Reavis

The answer to this problem can easily be calculated from the calculators on this website.

http://www.business-analysis-made-easy.com/NPV-Calculator.html

http://www.business-analysis-made-easy.com/Calculating-Internal-Rate-Of-Return.html

The answers are as follows:

NPV


0%  260,000
2%  217,691
4%  179,618
6%  145,311
8%  114,359
10%  86,401

IRR = 17.86%

Go try it yourself!

Especially try the IRR percentage in the NPV calculation. It will be within rounding error of zero. (Recall that the definition of IRR is when the NPV=0)

Present Value

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IRR and NPV