I will receive 100 U, 200 U and 50 U at the end of this year, and at the end of the next 2 years. If the discount rate is 10%, this is equivalent to receiving immediately the amount of:
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If these cash flows are generated from an initial investment of 95 units, the net present value is
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Since the npv is positive, the project would be accepted on that basis.
What is the internal rate of return?
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The internal return is 115%. Since this is bigger than the discount rate the project would be also be accepted on the IRR basis. One can see the npv versus rate by plotting
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It is prudent to do this plotting, since it is possible to have multiple solutions to the IRR relationship (npv=0).