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Present Value of cashflows discounted @ 10.00% -100.00 9.09 8.26 7.51 6.83 68.30 100.00 100.00 0.00
Year 0 1-Jan-09 -100 Year 1 1-Jan-10 10 Year 2 1-Jan-11 10 Year 3 1-Jan-12 10 Year 4 1-Jan-13 10 Year 5 1-Jan-14 110 Total negative cash flows or outflows 100 Total positive cash flows or inflows 150 Sum of positive and negative discounted cash flows Internal Rate of Return (IRR) 10.00% This is equivalent to the discount rate which makes the NPV of cash flows Zero as a
IRR Calculation with unequal cash flows: (Smaller cash inflows in initial years and larger cash inflows in later years) Year Date Cash Flows Present Value of cashflows discounted @ 9.13% Year 0 1-Jan-09 -100 -100.00 Year 1 1-Jan-10 0 0.00 Year 2 1-Jan-11 5 4.20 Year 3 1-Jan-12 10 7.69 Year 4 1-Jan-13 15 10.58 Year 5 1-Jan-14 120 77.53 Total negative cash flows or outflows 100 100.00 Total positive cash flows or inflows 150 100.00 Sum of positive and negative discounted cash flows 0.00 Internal Rate of Return (IRR) 9.13% IRR lower than in case A (above) because of smaller cash inflows initial years vis-
values of aggregate cash flows is same in both A & B cases
IRR Calculation with unequal cash flows: (Larger cash inflows in initial years and smaller cash inflows in later years) Year Date Cash Flows Present Value of cashflows discounted @ 20.27% -100.00 41.57 27.65 17.24 9.56 3.97 100.00 100.00 0.00
Year 0 1-Jan-09 -100 Year 1 1-Jan-10 50 Year 2 1-Jan-11 40 Year 3 1-Jan-12 30 Year 4 1-Jan-13 20 Year 5 1-Jan-14 10 Total negative cash flows or outflows 100 Total positive cash flows or inflows 150 Sum of positive and negative discounted cash flows Internal Rate of Return (IRR) 20.27% IRR higher than in case A (above) because of larger cash inflows initial years vis-values of aggregate cash flows is same in all the above cases
Discounted from Year1 to Year0 Discounted from Year2 to Year0 Discounted from Year3 to Year0 Discounted from Year4 to Year0 Discounted from Year5 to Year0
<=Net Present Value (NPV) s equivalent to the discount rate which makes the NPV of cash flows Zero as above
Discounted from Year1 to Year0 Discounted from Year2 to Year0 Discounted from Year3 to Year0 Discounted from Year4 to Year0 Discounted from Year5 to Year0
<=Net Present Value (NPV) wer than in case A (above) because of smaller cash inflows initial years vis--vis later years, though absolute s of aggregate cash flows is same in both A & B cases
Discounted from Year1 to Year0 Discounted from Year2 to Year0 Discounted from Year3 to Year0 Discounted from Year4 to Year0 Discounted from Year5 to Year0
<=Net Present Value (NPV) gher than in case A (above) because of larger cash inflows initial years vis--vis later years, though absolute s of aggregate cash flows is same in all the above cases