Accounting Information Systems 1st Edition by Vernon Richardson,Chengyee Chang ,Rod Smith

Exercise 24

Use Microsoft Excel to assess the internal rate of return for an IT initiative. Suppose the initial investment is $70,000. The returns on investment in dollars for the following5 years are (a) $12,000, (b) $15,000, (c) $18,000, (d) $21,000, and (e) $26,000. Use the IRR function to compute the internal rate of return after 2, 3, and 5 years. Next, assume that the loan for the initial $70,000 is at 8 percent and you are earning 15 percent on the annual returns. Use the MIRR function to calculate the internal rate of return. Is the annual rate of return higher when using the MIRR function than the IRR function? Under what circumstances would it be lower?