Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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**Problem Statement:**

Compute the Internal Rate of Return (IRR) for the investment represented by the following cash flow table:

| Year | 0     | 1    | 2    | 3    | 4    | 5    | 6    | 7    |
|------|-------|------|------|------|------|------|------|------|
| Cash Flow (in $1000's) | -1200 | +350 | +300 | +250 | +200 | +150 | +100 | +50  |

**Table Explanation:**

- **Year 0:** An initial investment of $1,200,000 is made, represented as -1200 (in thousands of dollars).
- **Year 1 to Year 7:** The project yields positive cash flows, decreasing each year from $350,000 in Year 1 to $50,000 in Year 7.

This information is used to calculate the IRR, which is the discount rate that makes the net present value (NPV) of the cash flows equal to zero.
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Transcribed Image Text:**Problem Statement:** Compute the Internal Rate of Return (IRR) for the investment represented by the following cash flow table: | Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | |------|-------|------|------|------|------|------|------|------| | Cash Flow (in $1000's) | -1200 | +350 | +300 | +250 | +200 | +150 | +100 | +50 | **Table Explanation:** - **Year 0:** An initial investment of $1,200,000 is made, represented as -1200 (in thousands of dollars). - **Year 1 to Year 7:** The project yields positive cash flows, decreasing each year from $350,000 in Year 1 to $50,000 in Year 7. This information is used to calculate the IRR, which is the discount rate that makes the net present value (NPV) of the cash flows equal to zero.
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