Hi bamahoky

How would I do it. I'm not really supposed to say for homework

examples, but it's an important general question.

A pretty simple solution!

It's:

10/75 + 5%

returns: 18.33333%

It's a dirty question aimed at getting you to do a lot of work or to

look at the formula involved.

Briefly:

PV = PMT*(1+e)^-1 + PMT*(1+g)/(1+e)^-2 + .....

This involves a geometric progression which can be summed:

PV = PMT*(1+e)^-1 + PMT*(1-(1+g)^n/(1+e)^n)/(1-(1+g)/(1+e))

Since n is infinite this resolves to

PV = PMT*1/(e-g)

A standard formula for valuing an infinite cash flow (in arrears) with

a constant growth rate.

Re-expressed

e = PMT/PV + g

In the example:

=10/75 + 5%

Returns: 18.3333333%

If you set up a dirty cash flow

A1: -75

A2: 10

A3:

=A2*(1+.05)

Copied down to (say A200

=IRR(A1:A200,0)

Returns: 18.3333333%

And in the days of financial calculators some students couldn't

understand how others finished so quickly and got 100% and they got

the same answer after a lot of sweat and only got 60%. I always

awarded marks for method!

Other students were failed because they failed to properly acknowledge

assistance in coursework assignments!!!

--

Regards

Norman Harker MVP (Excel)

Sydney, Australia

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