Ask Question
18 September, 09:30

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

+1
Answers (1)
  1. 18 September, 12:36
    0
    The internal rate of return for the project is 12.4%.

    Explanation:

    The internal rate of return (IRR) of a project is the discount rate that brings the net present value of all project cash flows to 0 (zero).

    We have the project cash flows summarized as followed:

    Y0 = Net initial investment of - $100,000;

    Y1 - Y5: equal annual net cash inflows of $28,000 each year.

    Thus, we have the formula for finding IRR as followed:

    -100,000 + (28,000/IRR) / [ 1 - (1+IRR) ^ (-5) ] = 0;

    Solve the equation, we have IRR = 12.4%.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “An investment project requires a net investment of $100,000. The project is expected to generate annual net cash inflows of $28,000 for the ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers