Question

Calculate the IRR of a machine that is purchased for $5,000, sold at the end of year 4 for $2,500, and produces the following cash flows: o Year 1: $700. o Year 2: $800. o Year 3: $900. o Year 4:$1,000.

Answer 1

Answer:

5.3%

Explanation:

Year     Cash-flow

0           -$5,000

1             $700

2            $800

3            $900

4            $3,500

Using the IRR Function on MS Excel

IRR of the machine = IRR(Cashflow 0,1,2,3,4)

IRR of the machine = 0.053

IRR of the machine = 5.3%