From the course: Investment Evaluation

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The case of no IRR

The case of no IRR - Microsoft Excel Tutorial

From the course: Investment Evaluation

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The case of no IRR

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- Consider the following scenario. Kevin's construction company, Meetendun, is considering taking on quite a large project. The deal is for 30 million dollars paid out over a five year period. However, the payout is structured so that Kevin will receive 10 million dollars up front at time zero and then receive the other 20 million at the end of year five. Let's further imagine that Kevin is going to incur costs of about six million dollars per year over the next four years to even complete the project. We'll go with a discount rate of 10% on all future cash flows throughout the project. Just from looking a this, without considering the time value of money, we can imagine that Kevin's getting a good deal. After all, his costs are 24 million and he's getting paid 30 million for a profit of six million dollars. So, let's put this on a timeline just to see what it would look like. Starting with time zero, Kevin has a payment coming to him of 10 million dollars. Then, from times one…

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