The internal rate of return is the interest rate that equates the future cash flows to the original invesment when the future cash flows are discounted to the present. The investment is the present value of an annuity. The future cash flows are the rents of the annuity,; you have the term--30 months, and you need to solve for the interest rate. Bill gave you the spreadsheet method of solving the problem. a financial calculator also solves it easily. You punch in:

PV = 135,500

PMT = $5894.35

N = 30

i% = ?? == 1.81146

Multiply i% by 12 to get the annual rate. = 21.74%

B. 21.74%

Open Up Excel

In Column A, type 0 through 30. This process can be expedited using the fill feature. I have used cell A1 for zero.

In Column B, type -135500 in the cell adjacent to 0 (I used B1), and type 5894.35 in the one below that corresponding to 1. Copy this value (5894.35) to the other cells until you reach 30.

Now, in another cell, type =IRR(b1:b31)*12. This should be adjusted if you use different cells than I use for the cash flows. We use the IRR function to find the monthly internal rate of return. Since they are monthly cash flows, we multiply by 12 to annualize the rate. When we do this, we find the annualized rate of return is B. 21.74%

The Robertson Firm is considering a project that costs $135,500 to undertake. The project will yield cash flows of $5,894.35 monthly for 30 months. What is the rate of return on this project?

a. 22.44%

b. 21.74%

c. 26.59%

d. 23.59%

e. 21.53%

Please explain how to do this problem!