In this exercise we solve iteratively for the internal rate of return. Consider an investment that costs 800 and has cash fl ows of 300, 200, 150, 122, 133 in years 1–5

(see cells A8:B13 in the following spreadsheet). Setting up the loan table shows that 10 percent is greater than the IRR (since the return of principal at the end of year 5 is less than the principal at the beginning of the year).

By changing the IRR? cell, fi nd the internal rate of return of the investment.

A B C D E G 1 IRR? 10.00% 2 LOAN TABLE Division of payment between: Principal Payment Year Cash flow Year at beginning at end of Interest Principal 3 of year year 4 0 -800 1 800.00 300.00 80.00 220.00 5 1 300 2 580.00 200.00 58.00 142.00 6 2 200 3 438.00 150.00 43.80 106.20 7 3 150 4 331.80 122.00 33.18 88.82 8 4 122 5 242.98 133.00 24.30 108.70 9 5 133 6 134.28