# internatl rate of return (IRR)

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Posted by bana on September 20, 2002 at 08:04:35:

Hi I have a question here, I have worked out part of the problem but could not figure out how to do the rest:

A factory bought an equipment for \$81000. The equipment has an expected life of 3 yrs with zero salvage value at the end of that time. The expected returns before tax are \$77000 at the end of the first and second yrs, \$35000 at the end of the third yera. The tax rate is 33% and that is payable on returns of net depreciation calculated as \$27000 per year. I.e. after tax returns net of depreciation at the ed of first year is 77000-0.33(77000-27000). HOw to work out the internal rate of return using excel?

first of all i added up the total return 77000+77000+35000=189000
assuming the discount rate at 5%,
the Net Present Value I got was
189000(1+0.05)^(-3) - 81000 = 82265.30612

the I worked out the IRR by hand, but could not fit in the tax or the depreciation part

fv=p(1+i)^n
189000=81000(1+r/100)^3
7/3=(1+r/100)^3
log 7/3 = 3 log(1+r/100)
0.122658928 = log (1 +r/100)
1.326352403 = 1+ r/100
0.326352403 = r/100
32.63% =r

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