I will receive 100 units, 200 units and 50 units at the end of this year, and at the end of the next 2 years. If the discount rate is 10%, this is equivalent to receiving immediately the amount of:
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If these cash flows are generated from an initial investment of 95 units, the net present value is
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Since the net present value (npv) is positive, the project would be accepted on that basis.
What is the internal rate of return?
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The internal return is 115%. Since this is bigger than the discount rate the project would be also be accepted on the IRR basis. One can see the npv versus rate by plotting
It is prudent to do this plotting, since it is possible to have multiple solutions to the IRR relationship (npv=0).