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    CindyJ's Avatar
    CindyJ Posts: 2, Reputation: 1
    New Member

    Apr 14, 2007, 08:26 PM
    Internal Rate of Return
    I don't want the answer... I just have some questions to get me going. Here are the facts:

    Cost of the facility: $2,045,000
    Useful Life: 12 years
    Selling for(after 12yrs): $600,000
    Annual Cash Inflow: $400,000
    Annual Cash Outflow: $160,000
    Calculate the internal rate of return...

    The book says you can divide the cost of the facility by the annual cash flow and then take that answer and look at the "present value of an annuity of 1" table under 12 and find the IRR. Is $600,000 my salvage value? Am I adding the salvage value to my cash inflow then subtracting my outflow to get my annual cash flow? I'm not getting any of the numbers in the table using the above info... help! :mad:
    rentaaskme's Avatar
    rentaaskme Posts: 2, Reputation: 1
    New Member

    Jul 5, 2007, 11:02 AM
    Maybe it's too late to respond your question!
    - the answer is 8% using IRR and 10% using MIRR.

    the process is like this:
    - find the free cash flow (FCF) by subtracting cash-in with cash-out.
    - cash-out & cash-in is the same over 12 ys, but u can not use annuity. Why?Remind, at year 12 U get another 600,000. So the FCF at year 12 is $840,000. If the case, That is not annuity.
    - you right,$600,000 is salvage value of your asset after 12 ys
    - by using EXCEL formula =IRR() u get what U find!

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