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Basic Question 14 of 29
Saline Company is considering investing in a new project. The project will need an initial investment of $1,200,000 and will generate $600,000 (after-tax) cash flows for three years. Calculate the IRR for the project.
B. 18.6%
C. 23.4%
A. 14.5%
B. 18.6%
C. 23.4%
User Contributed Comments 9
| User | Comment |
|---|---|
| zhaojiang | PV=-1,200,000 PMT=600,000 N=3, FV=0, CPT I/Y=22.38 |
| zax4 | Use CF option on BA II CF0 = -1200000 enter then press down arrow CF1 = 600000 enter then press down arrow F = 3 enter Press IRR then CPT Gives 23.4% |
| sarath | Best method is to use the CF options of the BA II Plus Professional Financial calculator.. |
| SueLiu | On the HP12C: CFo = -1200000 CFj = 600000 Nj = 3 Then just hit IRR. |
| Bibhu | CF option ( as given by zax4) is the correct way to calculate. zhaojiang answer could produce erroneous results in some questions. |
| mwali | Thanx zax4 I have finally managed to calculate with the BAII plus calculator. |
| Kobe8kenji | It is faster and easier to use zhaojiang's method if the cashflows are the same |
| seanj951 | but he got the wrong answer... |
| cfastudypl | The answer is not wrong, it is 23.3755 to 1dp becomes 23.4. I suggest you use the method you are familiar and confident with. Well done zhaojiang. |
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Learning Outcome Statements
describe the capital allocation process, calculate net present value (NPV), internal rate of return (IRR), and return on invested capital (ROIC), and contrast their use in capital allocation
CFA® 2024 Level I Curriculum, Volume 2, Module 5.