Answered: Outline the steps for determining the…

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter16: The Markets For Labor, Capital, And Land

Section: Chapter Questions

Problem 12P

See similar textbooks

Related questions

Question

Outline the steps for determining the IRR for a mixed investment?

Expert Solution

Step 1

The metric used in capital budgeting help to assess the potential investments profit is known as IRR (internal rate of return). The IRR is a discount rate which make the NPV (net present value) of all cash flow equal to zero.

Step 2

The IRR represents the interest rate that reduces the net present value equal to zero. The project would accept when the IRR is higher than the discount rate and reject when IRR becomes lower than the discount rate.

The steps to measure the IRR can be listed as follows.

Discount the future cash flow to the present time.
Set the net present value of cash flow equal to zero by using the trial and error method.

Step by step

Solved in 3 steps with 1 images

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions