Math Problem Statement

Consider the following cash flows:

Year Cash Flow 0 −$ 33,500 1 14,500 2 17,200 3 11,900 What is the IRR of the cash flows?

Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.

Solution

_financial import irr

Given cash flows

cash_flows = [-33500, 14500, 17200, 11900]

Calculating IRR

internal_rate_of_return = irr(cash_flows)

Converting IRR to percentage and rounding to 2 decimal places

irr_percentage = round(internal_rate_of_return * 100,The Internal Rate of Return (IRR) of the given cash flows is 14.89%.

Would you like a detailed explanation of how this is calculated or have any additional questions? Here are five related questions you might consider:

  1. What is the significance of IRR in investment decision-making?
  2. How does IRR compare to the Net Present Value (NPV) method?
  3. What assumptions does the IRR calculation make about reinvestment of cash flows?
  4. How would the IRR change if the initial cash outlay increased?
  5. Can there be multiple IRRs for a single project, and why?

Tip: Always compare the IRR to the project's hurdle rate to determine if the investment is worthwhile.

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Math Problem Analysis

Mathematical Concepts

Internal Rate of Return (IRR)
Time Value of Money
Cash Flow Analysis

Formulas

IRR is the discount rate that makes the Net Present Value (NPV) of cash flows equal to zero.

Theorems

Time Value of Money principle

Suitable Grade Level

Undergraduate Finance or Business Studies

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