Question
Consider the cash flow shown in the figure below. (a) Using the formula for present value of a future amount, write the formula for the
Consider the cash flow shown in the figure below.
(a) Using the formula for present value of a future amount, write the formula for the IRR (i') corresponding to this cash flow. \
cash flow : (-5000, +6000, -1000, +4000) 4 periods
(b) Solve the equation in part (a) [note, you can get the exact solution of a cubic equation, e.g. see this Wikipedia description]. Suppose the MARR is 12%, what can you conclude about the acceptability of the investment using the IRR rule? Explain your answer.
(c) Suppose that you are also given an external rate, = 12%. What can you conclude based on the ERR rule?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started