Blinding Light Co. has a project available with the following cash flows: Year Cash Flow 0 −$35,070 1 7,970 2 9,570 3 13,560 4 15,610 5 10,340 What is the project's IRR?

IRR is the discount rate at which the NPV of the project's cash flow becomes zero. ThNPV calculated using discount rate below IRR is positive and over IRR is negative.

To calculate the IRR using the following formula

IRR = Lower Rate + ( Lower rate NPV / ( Lower rate NPV - Higher rate NPV ) ) x ( Higher rate - Lower rate )

Now calculate the NPV two different rates

NPV at 17%

Year___Cash Flows__Preser value factor 17%__Present value

0______($35,070)___( 1 + 17%)^-0 = 1 _________($35,070)

1_______$7,970____ ( 1 + 17%)^-1 = 0.8547 _____$6,812

2_______$9,570____( 1 + 17%)^-2 = 0.7305 ____$6,991

3_______$13,560___ ( 1 + 17%)^-3 = 0.6244 ____$8,466

4_______$15,610____( 1 + 17%)^-4 = 0.5337 ____$8,330

5_______$10,340____( 1 + 17%)^-5 = 0.4561____ $4,716

NPV ___________________________________ $246

NPV at 18%

Year___Cash Flows__Preser value factor 18%__Present value

0______($35,070)___( 1 + 18%)^-0 = 1 _________($35,070)

1_______$7,970____ ( 1 + 18%)^-1 = 0.8475 _____$6,754.24

2_______$9,570____( 1 + 18%)^-2 = 0.7182 _____$6,873.03

3_______$13,560___ ( 1 + 18%)^-3 = 0.6086 ____ $8,253.04

4_______$15,610____( 1 + 18%)^-4 = 0.5158 _____$8,051.46

5_______$10,340____( 1 + 18%)^-5 = 0.4371_____ $4,519.71

NPV ___________________________________ ($618.52 )

Nox place the values in the formula

IRR = 17% + ( ( $246 / ( $246 - ( - 618.52 ) ) ) x ( 18% - 17% )

IRR = 17.28%