If an investment requiring a $20,000 initial investment is forecasted to produce income of $3,000 per...

If an investment requiring a $20,000 initial investment is forecasted to produce income of $3,000 per year for five years and will be sold at the end of year 5 for $20,000, what is its projected IRR?

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Expert Solution

Let irr be x%
At irr,present value of inflows=present value of outflows.

20,000=3000/1.0x+3000/1.0x^2+3000/1.0x^3+3000/1.0x^4+3000/1.0x^5+20,000/1.0x^5

Hence x=irr=15%

jeff jeffy answered 2 years ago

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