# Re: internatl rate of return (IRR)

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Posted by bana on September 20, 2002 at 19:34:27:

In Reply to: Re: internatl rate of return (IRR) posted by Ryan on September 20, 2002 at 11:47:47:

sorry I'm really confused still. how can i arrange my equations and get them to link together?

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

: : 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

: : Please help me fit in the tax and depreciation part. thank you.

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