Posted by Ryan on September 20, 2002 at 11:47:47:
In Reply to: internatl rate of return (IRR) posted by bana on September 20, 2002 at 08:04:35:
set up an income statement for each year and your initial outlay.
You can not add up you cash flows and discount them back three years --> cash flow in the second year should only be discounted back 2 years.
: 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
: 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
: Please help me fit in the tax and depreciation part. thank you.
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