external-rate-of-return

1. Engr Muiz Abdur Raqib
Mechanical Engineer

2. INTERNAL RATE OF RETURN
Internal rate of return is defined as the interest rate paid on the unpaid
balance of a loan such that the payment schedule makes the unpaid loan
balance equal to zero when the final payment is made.

3. CALCULATING RATE OF RETURN
Value of i for which
An $8200 investment returned $2000 per year over a 5-year useful life. What was the rate of return on the
investment?
Example 1
1 2 3 4 5 year
2000 2000 2000 2000 2000
Cost - 8200

4. Finding Rate of Return (IRR)
Search (P/A, i, 5) factor in INTEREST TABLES with value near to 4.1

5. Search (P/A, i, 5) factor in INTEREST TABLES with value near to 4.1

6. Search (P/A, i, 5) factor in INTEREST TABLES with value near to 4.1

7. So IRR = 7%

8. Example
1 2 3 4 5 year
20 30 20 40 40
Cost - 100

12. 𝑥 =
15 − 10) x 10.6
10.6 + 4.02
= =
5 x 10.6
14.62
= 3.5
Using Interpolation
So, IRR = 13.5%