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Math Help - IRR with no revenue?

  1. #1
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    IRR with no revenue?

    Hey,

    I'm kind of lost on this one question calculating the IRR of three projects that don't generate any revenue or accumulate any kind of savings. We haven't covered it in class, so I'm hoping someone could help me out:

    Company X is planning to upgrade its computer equipment. The supplier has given company X three options:

    1: Pay $50000 now.
    2: Pay 8 installments of $10000 each, starting from the end of the first year.
    3: Pay $30000 now and $6000 at the end of each year for the next 10 years.

    Which option should company X choose with the MARR at 7%? Use an IRR comparison method.
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  2. #2
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    Quote Originally Posted by discretemather View Post
    Hey,

    I'm kind of lost on this one question calculating the IRR of three projects that don't generate any revenue or accumulate any kind of savings. We haven't covered it in class, so I'm hoping someone could help me out:

    Company X is planning to upgrade its computer equipment. The supplier has given company X three options:

    1: Pay $50000 now.
    2: Pay 8 installments of $10000 each, starting from the end of the first year.
    3: Pay $30000 now and $6000 at the end of each year for the next 10 years.

    Which option should company X choose with the MARR at 7%? Use an IRR comparison method.
    Find the present values of each at 7% annual interest.

    1) Easy... $50,000

    2) \sum_{n=1}^8 10,000*\left(\frac{1}{1.07}\right)^n

    3) 30,000+\sum_{n=1}^{10} 6,000*\left(\frac{1}{1.07}\right)^n

    Are you familiar with geometric series, otherwise known as constant (non-life) annuity payments in the actuarial world?
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