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    Sarahwills's Avatar
    Sarahwills Posts: 4, Reputation: 1
    New Member
    		  
    #1

    Nov 18, 2012, 01:21 AM
    I need help with finding Internal rate of return?
    I have a problem to solve.

    A 2 year investment of $2000 results in a cash flow of $150 at the end of the first year and another cash flow of $150 at the end of the second year, in addition to the return of the original investment. What is the internal rate of return on the investment?

    Answer: 7.5%

    From this question, in a 2 year investment is CF0= -2000, CF1= 150, CF2= 150. I am confuse of the sentence ( in addition to the return of the original investment. Why I can't find the IRR? Based on my assumption of CF0= -2000, CF1= 150, CF2= 150. Why is it wrong? I can't get 7.5%. Could anyone please help me?

    Thank you!
    ArcSine's Avatar
    ArcSine Posts: 969, Reputation: 106
    Senior Member
    		  
    #2

    Nov 18, 2012, 07:33 AM
    What they mean is that at the end of the second year, the investment returns not only 150 but also returns back the original investment amount of 2,000. Thus the three cash flows are, in order,
    -2,000; +150; +2,150.
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