Can someone please show me the formulas that would be used in excel to find this
ID: 2733194 • Letter: C
Question
Can someone please show me the formulas that would be used in excel to find this problem's answer?
Billy and Mandy Jones have $25,000 to invest. On average, they do not make any investment that will not return at least 7.5% per year. They have been approached with an investment opportunity that requires $25,000 upfront and has a payout of $6,000 at the end of each of the next 5 years. Using the internal rate of return (IRR) method and their requirements, determine whether Billy and Mandy should undertake the investment.
Explanation / Answer
At IRR , the value of investment equals to sum of present values of future cash flows. Year Cash flow PV factor at 6.4% Present Values 0 -25000 1 -25000 1 6000 0.939849624 5639.097744 2 6000 0.883317316 5299.903895 3 6000 0.830185447 4981.112683 4 6000 0.78024948 4681.496883 5 6000 0.733317181 4399.903085 NPV 1.514290996 At IRR 6.4% , the value of investment almost equals to sum of present values of future cash flows. As the IRR rate i.e 6.4% is less than the expected rate of 7.5% , Billy and Mandy should not undertake the investment.