Concept

• Internal rate of return/yield rate is the $i$ for which the PV of all returns on investment equals the PV of all contributions to the investment
• Net present value is the difference between the PVs of all returns and PVs of all contributions
• Lower yield rates favor the borrower and higher yield rates favor the lender

Solution

• Calculate the cash flows at each time period and discount them to the present; this relation can be used to find the NPV and IRR