Livestock Economics, Marketing and Business Management

HOW TO FIND OUT INTERNAL RATE OF RETURNS?

• First one should discount the total cash flows in a project with a certain discount rate and find out NPW.
• If the NPW is positive we should discount the cash flows with a higher discount rate and see whether the NPW is positive or negative. If the NPW is still positive we should go on discount the cash flows with higher discount rates until NPW becomes negative. Then using interpolation method the IRR can be found out.
• For a given project if IRR is greater than the opportunity cost of the capital, then the project is accepted.
• If the IRR is less than the opportunity cost of the capital then the project has to be rejected that means.
  • If IRR > C – Project is accepted
  • If IRR<C - Project is rejected
• For choosing among various alternate projects the project with the highest IRR is to be selected.

Find out NPW, BCR and IRR for a dairy project with following details and draw inferences. (Interest rate = 12%).

Years	Cash outflow	Cash inflow
1	38900	-
2	9230	28475
3	10525	32500
4	11952	35610
5	12858	39800

Work out NPW, BCR and IRR for a dairy project with following details and draw inferences.

(Interest rate = 20%).

Year	Cash Outflow	Cash Inflow
1	1040	43940
2	38350	30126
3	41452	32987
4	44683	34372
5	50668	34768
6	77513	24179