00:01
Hello students, so let us look at this question.
00:05
Here we need to calculate the internal rate of return of a project and also we need to find out the discount rate that makes the net present value that is npv of the cash flows which is equal to zero.
00:18
So in this case we are given with the cash flows over the next four years and the exact payback over a period of 2 .8 years.
00:28
So to calculate the irr we can use the equations like npv which is equal to initial investment plus cf1 divided by 1 plus irr raised to the power 1 plus cf2 divided by irr 1 plus irr raised to the power 2 plus cf3 divided by 1 plus 0 .10 raised to the power 3 plus cf4 divided by 1 plus 0 .10 raised to the power 4.
01:32
So we can calculate the npv that is we can calculate the npv for the given cash flows and the assumed irr value for the 10 percent.
01:48
So npv is basically the net present value and irr is the internal rate of return.
01:56
So to calculate this we will generally use the excel or the specialized financial calculator.
02:05
So in this case let us use the trial and the error method.
02:10
So assuming the irr value we can calculate the npv using the formula that i have just written.
02:16
So let's start by assuming the irr value of 10 percent...