It seems that your PV for Y5 is incorrect, I’ll have a go at detailing my steps below:
Step 1: Calculate Terminal Value at Year 5
Using the Gordon Growth model, TV = [Final year projected Cash Flow * (1 + r)] / (r – g), where r is discount rate, g is long term cash growth rate.
So TV = (50,000) * (1-5%) / (15% + 5%) –> note: the terminal growth rate g is -5% (not 5%)
Step 2: Input these CF values in CF worksheet
For BA II plus calculator, make sure you clear your CF worksheet before you start a new calculation (always a good practice!!), by pressing the “2ND” “CE|C” button for CLR WORK function.
So currently your cash flow (undiscounted) are as follows for the CF function:
CF0 = -$500,000
CF1 = $10,000
CF2 = -$50,000
CF3 = $5,000
CF4 = $20,000
CF5 TV = $237,500 (not sure how you got your $1m number here with PV either?)
Step 3: Calculate IRR
Based on these input, I got an answer of -14.22% IRR. Is this correct?
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