Question

A company is considering an iron ore extraction project that requires an initial investment of​ $1,000,000 and will yield annual cash flows of​ $350,263 for 4 years. The​ company's hurdle rate is​ 9%. Calculate IRR. Present Value of an Annuity of​ $1 ​5% ​6% ​7% ​8% ​9% ​10% ​15% 1 0.952 0.943 0.935 0.926 0.917 0.909 0.870 2 1.859 1.833 1.808 1.783 1.759 1.736 1.626 3 2.723 2.673 2.624 2.577 2.531 2.487 2.283 4 3.546 3.465 3.387 3.312 3.240 3.170 2.855 5 4.329 4.212 4.100 3.993 3.890 3.791 3.352 A. ​15% B. ​10% C. ​18% D. ​12%

Answer 1

Answer:

A. ​15%

Explanation:

Period Cash Flow

0 -1000000

1 350263.00

2 350263.00

3 350263.00

4 350263.00

IRR 0.15000

Using the financial calculator you can solve for IRR

also you can try to find it doing

investment/cash flow = annuity factor

1,000,000/350,263 = 2.85499753

If you look for this value in the table you will find n=4 and rate = 15% 2.855

which is really close to the division we made, so you can say it is 15% without doing the math, if you udnerstand how the table work