Exercise 1. Calculate the Internal Rate of Return on the following cash flow series. The cash flows below are real (not nominal) cash flows. The inflation rate is 2.8%. Express your answer as a single numerical value to once decimal place. Determine: (a) Real IRR (b) Nominal IRR Year 0 1 2 3 4 5 6 7 Capital ($AUD m) (400) Net after tax cash 50 75 90 100 105 110 115 flow ($AUD m)
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The inflation rate is given as 2.8%. To adjust each cash flow, we divide it by (1 + inflation rate). Year 0: -400 / (1 + 0.028) = -400 / 1.028 = -389.11 (rounded to two decimal places) Year 1: 50 / (1 + 0.028) = 50 / 1.028 = 48.68 (rounded to two decimal Show more…
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