Question

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An investment project requires an initial outlay of $100,000, and is expected to generate annual cash...

An investment project requires an initial outlay of $100,000, and is expected to generate annual cash inflows of $28,000 for the next 5 years. The cost of capital is 12 percent. Determine the internal rate of return for the project (to the nearest tenth of one percent).

a.

12.0%

b.

12.6%

c.

3.6%

d.

12.4%

Solutions

Expert Solution

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

100,000=28000/1.0x+28000/1.0x^2+28000/1.0x^3+28000/1.0x^4+28000/1.0x^5

Hence x=irr=12.4%(Approx)

jeff jeffy answered 3 years ago
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