Question

Boulderado has come up with a new composite snowboard. Development will take Boulderado four years and cost $250,000 per year, with the first of the four equal investments payable today upon acceptance of the project. Once in production the snowboard is expected to produce annual cash flows of $200,000 each year for 10 years. Boulderado's discount rate is 10%. The IRR for boulderado's snow board project is closest to : A. 10.4% B.10.0% C.11.0% D.15.1%

Answer 1

IRR is that discount rate which gives 0 NPV.
The discount rate has to be found out by trial and error by trying different
discount rates to get 0 NPV.
Year	Cash Outflow	Cash Inflow	Net Cash Flow	PVIF at 10%	PV at 10%	PVIF at 11%	PV at 11%
0	250000	0	-250000	1.00000	-250000	1.00000	-250000
1	250000		-250000	0.90909	-227273	0.90090	-225225
2	250000		-250000	0.82645	-206612	0.81162	-202906
3	250000		-250000	0.75131	-187829	0.73119	-182798
4	0	200000	200000	0.68301	136603	0.65873	131746
5	0	200000	200000	0.62092	124184	0.59345	118690
6	0	200000	200000	0.56447	112895	0.53464	106928
7	0	200000	200000	0.51316	102632	0.48166	96332
8	0	200000	200000	0.46651	93301	0.43393	86785
9	0	200000	200000	0.42410	84820	0.39092	78185
10	0	200000	200000	0.38554	77109	0.35218	70437
11	0	200000	200000	0.35049	70099	0.31728	63457
12	0	200000	200000	0.31863	63726	0.28584	57168
13	0	200000	200000	0.28966	57933	0.25751	51503
NPV					301588		302
For 0 NPV the discount rate should be close to 11%
Hence, IRR is closest to 11.00% =. Option [C]