A third-year college friend of yours opened Mike’s Bike Repair Shop when he was a freshmen working on a sociology degree. He shared his NCF figures for the 3 years, including the $17,000 amount that it took to get started in business.

(a) Determine the number of possible rate of re­turn values.

(b) Find all i* values between ?50% and 110% by plotting PW versus i* for your friend. (Use 20% increments.)


(a) Three sign changes in NCF series; three possible i* values. Norstrom’s

criterion also indicates that there may be more than one i* value.



(b) IRR equation is: 0 = -17,000 + 20,000(P/F,i*,1) - 5000(P/F,i*,2) + 8000(P/F,i*,3)



i* = 24.4% per year

Plot of PW versus i* crosses x-axis only once at i* = 24.4%

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