Internal Rate of Return

Problem.No.1
An equipment involves an initial investment of Rs.6,000. The annual cash flow is estimated at Rs.2,000 for 5
years. Calculate IRR.
Problem.No.2
A company has to select one of the following projects:
Particulars
Project X in Rs.
Project Y in Rs.
Cost
11,000
10,000
st
Cash inflows: 1 Year
6,000
1,000
nd
2 Year
2,000
1,000
rd
3 Year
1,000
2,000
th
4 year
5,000
10,000
Using IRR method, suggest which project is preferable.
Present value discount factor table:
Year
1
2
3
4

Discount factor at
10%
0.909
0.826
0.751
0.683

Discount factor at
12%
0.893
0.797
0.712
0.636

Discount factor at
15%
0.870
0.750
0.658
0.572

Problem.No.3
A project costs an initial investment of Rs.40,000 and is expected to generate annual cash inflows of Rs.16,000
for 4 years. Calculate IRR.
Present value of Re.1 at varying discount rate for a period of 4 years
Year
1
2
3
4

19%
0.8403
0.7062
0.5934
0.4987
2.6386

20%
0.8333
0.6944
0.5787
0.4823
2.5887

22%
0.8196
0.6719
0.5507
0.4514
2.4936

Problem.No.4
A project costs Rs.16,000 and is expected to generate cash inflows of Rs.4,000 each for 5 years. Calculate IRR.
Present value of Re.1 at varying discount rate for a period of 5 years
Year
1
2
3
4
5

7%
0.9346
0.8743
0.8163
0.7629
0.7130

8%
0.9259
0.8573
0.7938
0.7350
0.6806

9%
0.9174
0.8417
0.7722
0.7084
0.6499

4.1011

3.9926

0.38896

Problem.No.5
A Project is estimated to cost Rs.16,200. It is expected to have a life of 3 years and generate cash inflows of
Rs.8,000 , Rs.7,000 and Rs.6,000 respectively. Calculate IRR.
Present value of Re.1 at varying discount rate for a period of 3 years
Year
1
2
3

13%

14%

15%

0.8850
0.7831
0.6930
2.3611

0.8772
0.7695
0.6750
2.3217

16%
0.8696
0.7561
0.6575
2.2832

0.8621
0.7432
0.6407
2.2460

Problem.No.6
A firm whose cost of capital is 10% is considering two projects X and Y, the details of which are:
Particulars
Investment
Cash inflows: 1st Year
2nd Year
3rd Year
4th year
5th Year
Total

Project X in Rs.
Project Y in Rs.
1,00,000
1,00,000
20,000
45,000
30,000
40,000
40,000
30,000
50,000
10,000
60,000
8,000
2,00,000
1,33,000

Compare the net present value at 10%, profitability index, and internal rate of return for the two projects
separately, project X by 20 and 29% and project Y by 9 and 15%. Use he following discount factor calculating
IRR.
Year
1
2
3
4
5

20%
0.833
0.694
0.579
0.483
0.402

29%
0.775
0.601
0.466
0.361
0.280

10%
0.909
0.826
0.751
0.683
0.621

9%
0.917
0.842
0.772
0.708
0.650

15%
0.870
0.750
0.658
0.572
0.497

Problem.No7
A company has an investment opportunity costing Rs.40,000 with the following expected net cash inflows (i.e.,
after taxes and before depreciation)
Year
1
2
3
4
5

Net cash Inflow

Rs.
7,000
7,000
7,000
7,000
7,000

6
8,000
7
10,000
8
15,000
9
10,000
10
4,000
Determine the Internal rate of return with the help of 10% discount factor and 15% discount factor , which is
given below:
Year
1
2
3
4
5
6
7
8
9
10

10%
0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.467
0.424
0.386

15%
0.870
0.750
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247