Exercise 3-9 Internal rate ofreturn method An investment can be characterised as follows: Initial outlay: € 60,000 (to be paid at the decision point of time), economic life: 5 years. The estimated cash outflow and cash inflow are as shown in the table:

Cash outflow in € Cash inflow in €

End of year 1 20,000 20,000 End of year 2 30,000 30,000 End of year 3 30,000 50,000 End of year 4 35,000 50,000 End of year 5 20,000 60,000

a) Calculate the internal rate of return with the help of the known approximate solution. Use as discount rates i, 4 % and i2 6 %.

b) Estimate the internal rate of return using discount rates of i, 4 % and i2 10 %. What is noteworthy if you compare your results to those of part a?

c) Set up a calculation within an Excel spreadsheet. What is the proposed investment's internal rate of return? Compare your result to the results from part a and part b.

d) Is the investment worthwhile if the minimum rate of return desired is 9 %?