In this exercise we solve iteratively for the internal rate of return. Consider an investment which costs 800 and has cash flows of 300, 200, 150, 122, 133 in years 1?5. Setting up the loan table below shows that 10% 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):

Setting the IRR? cell equal to 3% shows that 3% is less than the IRR, since the return of principal at the end of year 5 is greater than the principal at the beginning of year 5. By changing the IRR? cell, find the internal rate of return of the investment.

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в Т A 1 IRR? н 10.00% Division of payment between: LOAN TABLE Payment Principal at beglnning at end of Interest Principal of year Year Cash flow Year year 3 800.00 220.00 142.00 106.20 88.82 108.70 -800 300.00 80.00 58.00 43.80 300 2 3 4 580.00 438.00 200.00 6. 200 150.00 150 122 331.80 242.98 122.00 133.00 <-- Should be zero for 33.18 24.30 4 9. 134.28 133 IRR 2. 3. 5oNcolo A B н 1 IRR? 3.00% Division of payment between: LOAN TABLE Principal at beglnning at end of Interest Principal of year Payment Year Cash flow Year year 4 24.00 15.72 276.00 -800 800.00 300.00 2 184.28 139.81 300 524.00 339.72 199.91 83.91 200.00 200 150 122 133 3 4 150.00 3 4 10.19 6.00 2.52 116.00 122.00 133.00 130.48 9. -46.57 <-- Should be zero for IRR ш 2. 3. LO colN lcolo