Determine i* per year for the cash flows shown using factors and the IRR function. (Note: See Problem 7.55 for additional spreadsheet work with this series.)
What will be an ideal response?
Factors: Move all cash flows to year 1
0 = -80,000 + 9000(P/F,i*,1) + 70,000(P/F,i*,2) + 30,000(P/F,*i,3)
By trial and error, i* = 15.32%
Spreadsheet: Enter amounts for years 0 to 4 in cells B2:B6 or years 1 to 4 in cells B3:B6
= IRR(B2:B6) displays i* = 15.32%
or = IRR(B3:B6) displays i* = 15.32%
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