Difficulties in Solving for an Interest Rate 235Figure 7A-2 shows the spreadsheet calculations and the graph ofPW versusi.
FIGURE 7A-2 PW versusifor project with salvage cost.
In this case, there is I positive root of .10.45%.The value can be used as an IRR. There is also
a negative root ofi = -"38.29%. This root is not useful. With two sign changes, other similar
diagrams may have 0, I, or 2 positive roots for tlie PW=0 equation. The larger the value of the
final salvage cost, the more likely 0 or 2 positive roots are to occur.
. -- _-~IIIIIIIII!!'!!I!!!!!I~
A B C D E F G
1 Year Cash Flow i PW
2 0 -180 -40% -126.39 =$B$2 + NPV(D2,$B$3:$B$9)(^3150) -30% 219.99
(^4250) -20% 189.89
5 3 50 -10% ; 114.49
6 4 50 0% 50.00
7 5 50 10% 1.84
8 6 50 20% -33.26
9 7 -70 30% -59.02
10 40% -78.24
11 IRR 10.45% 50% -92.88
12 root - 38.29%
(^13) 250.00
(^14) 200,00
(^15) 150.00
(^16) 100.00
(^17) c.. 50.00
(^18) 0.00
f
19 -50.00
20 -100.00
21 -150.00 I I I
-40% -20% 0% 20% 40%
(^22) i