mgt411 idea solution assignment no 1 spring 2011

[Vuhelper]

[size=12]for full solution in attachment [/SIZE]



For IRR
( ) ( ) ( ) ( 1 2 3 )4 ( )5
1 2 3 4 5 0
1 1 1 1 1 O
CF CF CF CF CF CF
IRR IRR IRR IRR IRR
+ + + + + =
+ + + + +
USING TRIAL AND ERROR METHOD, we try with some IRR, and continue until
find the rate that forces the equation to equal to zero. The discount rate that causes the
equation to equal to zero will be IRR.
Let put the IRR =10 PERCENT THEN
( ) ( ) ( ) ( ) ( )
( ) ( ) ( ) ( ) ( )
1 2 3 4 5
1 2 3 4 5
1 2 3 4 5 0
1 1 1 1 1
, , , , , , , 0
1 0.10 1 0.10 1 0.10 1 0.10 1 0.10
2000000 2084932.71 0
O
CF CF CF CF CF CF
IRR IRR IRR IRR IRR
+ + + + + =
+ + + + +
- + + + + + =
+ + + + +
- + =
2 000 000 550 000 550 000 550 000 550 000 550 000
THIS IS NOT SUITABLE,BECAUSE ITS ANSWER NOT BRING THE
EQUATION TO ZERO, the IRR will be HIGHER from this, now tries with the 15
percent
( ) ( ) ( ) ( ) ( )
( ) ( ) ( ) ( ) ( )
1 2 3 4 5
1 2 3 4 5
1 2 3 4 5 0
1 1 1 1 1
, , , , , , , 0
1 0.15 1 0.15 1 0.15 1 0.15 1 0.15
2000000 1843693.049 0
O
CF CF CF CF CF CF
IRR IRR IRR IRR IRR
+ + + + +