IRR > WACC
Hey all, I have the following cash flows.
CF0 = -100 CF1 = 40 CF2 = 30 CF3 = 80
I solved for IRR and I received 20%.
Can I please add a bit of context to this question so I can further expand my knowledge? I want to assume that the $100 I borrowed is from a bank that charges me 10% Interest (compunded interest), and assuming I do not pay any principle before the final year I created this table for clarity:
(Year) (Cash Flow) (In Account) (You Take Out) (Net Account) (Interest Due)
0 -100 -100 N/A -100 0
1 40 120 40 80 10
2 30 96 30 66 11
3 80 80 80 0 12
Adding the you take out section we get 150 (and this is the total cash out amount we earned from this investment), and from this 150 we end up paying the 133.1 in debt (i.e 100*(1+10%)^3), correct?
And hence the IRR > WACC equation holds true.
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