Explanation
In this case, the initial investment is Rs 80,000, and the discounted cash inflows are Rs 30,000 per year for three years.
To find the IRR, we can use trial and error or a financial calculator or spreadsheet.
if we use a discount rate of 15%,
we can calculate the present value of the cash inflows as follows:
Year 1: Rs 30,000 / (1 + 0.15)^1 = Rs 26,086.96
Year 2: Rs 30,000 / (1 + 0.15)^2 = Rs 22,730.18
Year 3: Rs 30,000 / (1 + 0.15)^3 = Rs 19,756.67
Now, we can calculate the present value of the cash inflows and check if it equals the initial investment:
Present value of cash inflows = Rs 26,086.96 + Rs 22,730.18 + Rs 19,756.67 = Rs 68,573.81
Since the present value of the cash inflows is less than the initial investment,
we need to try a higher discount rate.
By trying different discount rates, we find that a discount rate of 20% makes the present value of the cash inflows equal to the initial investment of Rs 80,000.
Therefore, the IRR of the project is 20%.