An alternative definition of the IRR is the rate that makes the principal at the beginning of year 6 equal to zero.

In the preceding printout cell E9 gives the principal at the beginning of year 6. Using the Goal Seek function of Excel, find the rate that changes this figure to zero (the following picture shows how the screen should look).

(Of course you should check your calculations by using the Excel IRR function.)

Transcribed Image Text:

A B C D E F G H 3.00% 1 IRR? 2 LOAN TABLE Cash Year Year flow Principal Payment at beginning at end Division of payment between: Interest Principal of year of year 3 4 0 -800 1 800.00 300.00 24.00 276.00 5 1 300 2 524.00 20 Goal Seek X 6 2 200 3 339.72 15 7 3 150 4 199.91 12 Set cell: SE$9 8 4 122 5 83.91 13 9 5 133 6 -46.57 -To yalue: 0 10 By changing cell: $B$1 11 12 IRR 5.07% This uses the Excel formula =IRR(B4:89) Cancel 13