Reference no: EM13380601

The initial cash outlay (in year 0) and resulting cash inflows for three competing projects are presented below. Calculate the internal rate of return for each project (1-3) below using a formula in Excel. Which project would you choose? What if you only had $12,000 in year 0, and the cost of borrowing additional money was prohibitively high?

	Project 1	Project 2	Project 3
Year 0	$               (8,000)	$             (25,000)	$             (10,000)
Year 1	$                3,000	$                1,000	$                1,000
Year 2	$                3,000	$                3,000	$                2,000
Year 3	$                3,000	$                8,000	$                3,000
Year 4	n/a	$              10,000	$                4,000
Year 5	n/a	$              20,000	$                5,000
IRR

Using the same IRR formula, calculate the internal rate of return for project 4. Why is the result an error?

	Project 4
Year 0	$                5,000
Year 1	$                1,000
Year 2	$                2,000
Year 3	$                3,000
Year 4	$                4,000
Year 5	$                5,000
IRR