Question
Problem 5.2 Investment A: Calculate IR before tax Use the calculations you made in Problem 5, to calculate the internal rate of return before tax
Problem 5.2 Investment A: Calculate IR before tax Use the calculations you made in Problem 5, to calculate the internal rate of return before tax for investment project A described in Problem 5. Internal interest rates can be calculated in several ways. Below you will find some options when using Excel. Solve the problem graphically and double check the answer using the built-in function for calculating the internal rate. Graphic Solution: By varying the yield requirement (interest rate) in the calculation for NPV, you can find several sets of values for the interest rate and NPV: (r1, NPV1), (r2, NPV2), (r3, NPV3), etc. Set the values for r and npv in two columns, and plot a line graph based on this data. Read off the internal rate. The method provides an inaccurate solution, but illustrates the evolution of npv (s). Built-in IR function: Excel's built-in function for calculating the internal rate is called IRR, and can be used for an accurate calculation of IRR. (Note: The investment cost in year 0 is treated here differently than in the NPV function). Fill in the internal interest rate before tax in % in the field below. It is sufficient to answer with one decimal (eg an interest rate of 0.5467231 = 54.7%). A deviation of 5% from the answer is accepted.
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