Question
In: Finance
A project has an initial outlay of $100,000. It has a single cash inflow at the...
A project has an initial outlay of $100,000. It has a single cash inflow at the end of year 4 of $200,540. What is the internal rate of return for the project (round to the nearest %)? a. 15% b. 17% c. 19% d. 21%
Solutions
Expert Solution
IRR :
IRR is the Rate at which PV of Cash Inflows are equal to PV of Cash
Outflows or Rate of growth is expected from project/ Investment. At
IRR, NPV of Project/ Investment will be Zero. It assumes that
intermediary Cfs are reinvested at IRR only.
| Particulars | Amount |
| Present Value | $ 100,000.00 |
| Future Value | $ 200,540.00 |
| Periods | 4 |
Future Value = Cash Flow * ( 1 + r )^n
$ 200540 = $ 100000 ( 1 + r ) ^ 4
( 1 + r ) ^ 4 = $200540 / $100000
( 1 + r ) ^ 4 = 2.0054
( 1 + r ) = 2.0054 ^ ( 1 / 4 )
( 1 + r ) = 1.19
r = 1.19 - 1
r = 0.19 i.e 19 %
OPtion C is correct.
jeff jeffy answered 2 years agoRelated Solutions
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