Introduction to Corporate Finance

328

PART 3: CAPITAL BUDGETING

example

FIGURE 9.5A IRR OF GLOBAL UNTETHERED’S PROJECTS ($ MILLIONS): WESTERN EUROPE PROJECT

0 1 2 3 4 5

End of year

NPV = $0

IRR = 27.8%

–$250 $35 $80 $130 $160 $175

IRR?

IRR?

IRR?

IRR?

IRR?

250

Calculator

Input Function

2nd CLR TVM

CLR WORK

CF

2nd

35 ENTER

–250 ENTER

80 ENTER Solution 27.8

130 ENTER

160 ENTER

175 ENTER

IRR

CPT

Formula B7:

IRR(BI:B6)

IRR 27.8%

Cash flow 2

–250

35

80

Cash flow 1

Cash flow 0

Row

Column

Spreadsheet

1

2

3

4 Cash flow 3 130

5 Cash flow 4 160

(^6) Cash flow 5 175
7
8
A B
FIGURE 9.5B IRR OF GLOBAL UNTETHERED’S PROJECTS ($ MILLIONS): SOUTH-EASTERN AUSTRALIA PROJECT
The internal rate of return (IRR) for Global Untethered’s South-eastern Australia project is 36.7%, which is the discount rate
that causes the project’s cash flow to have an NPV of $0.

0 1 2 3 4 5

End of year

NPV = $0

IRR = 36.7%

-$50 $18 $22 $25 $30 $32

IRR?

IRR?

IRR?

IRR?

IRR?

50