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PV.AND.IRR The internal rate of return (IRR) method uses present value concepts to compute the rate of return from a capital investment proposal based on

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PV.AND.IRR The internal rate of return (IRR) method uses present value concepts to compute the rate of return from a capital investment proposal based on its expected net cash flows. This method, sometimes called the time-adjusted rate of return method, starts with the proposal's net cash flows and works YBACK AND.AVG.RA.. backward to estimate the proposal's expected rate of return. ME. VALUE.OF.MONEY Let's look at an example of internal rate of return calculation with even cash flows. A company has a project with a 5-year life, requiring an initial investment of $209,600, and is expected to yield annual cash flows of $52,500. What is the internal rate of return? IRR Investment Factor Annual cash flows "IRR Factor: This is the factor which Investment: This is the present you'll use on the table for the value of cash outflows associated present value of an annuity of $1 Annual Cash Flows: with a project. If all of the dollar in order to find the investment is up front at the This is the amount of percentage which corresponds to beginning of the project, the present cash flows to be the internal rate of return. value factor is 1.000. received annually as a result of the project. Calculation Steps Present Value of an Annuity of $1 at Compound Interest. IRR Factor = rounded to 6 decimals My Wo

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