IRR or NPV

[Calgarychris]

Hi,

I'm trying to work out what the rate of return would be for the following
equation. Essentially, our organization has a finance plan with a prepayment
of 2 months followed by 10 months of equal payments. 60-90 days after the
prepayment (depending on the effective contract date), the firm pays out the
lump sum. I need to work up the effective rate from this.

Inflow
Lump sum $120,000
Fee 5%
Total Financed $126,000
Upfront Payment 2 x 126000/12 paid Jan 31 2007
Monthly 126000/10 due monthly starting Feb 28 2007

Outflows
$120,000 due Mar 31 2007

Is this as simple as doing an IRR calculation with payment 1 = 21,000,
payment 2 = 10500, payment 3 = -109500 and the remaining 8 payments = 10500?
This results in a total of 1.99%

Any help GREATLY appreciated! Thanks

Chris

 

[Fred Smith]

Yes it is. Your calculations are correct. Remember, like most financial
functions, since you gave
IRR monthly payments, it will return a monthly rate. So IRR is telling you you
are charging 1.99% per month interest for your services.

Fred

 

[Calgarychris]

Thanks very much Fred!

Chris
--
Thanks!

Yes it is. Your calculations are correct. Remember, like most financial
functions, since you gave
IRR monthly payments, it will return a monthly rate. So IRR is telling you you
are charging 1.99% per month interest for your services.

Fred

 

[Calgarychris]

Hi Fred,

I just re-read your email more carefully!

In the example below, is there a way you can think of that I can prove the
1.99%? My understanding of this is shaky...

Thanks
Chris