Question

A project will generate annual cash flows of $237,600 for each of the next three years, and a cash flow of $274,800 during the fourth year. The initial cost of the project is $743,600. What is the internal rate of return of this project? Multiple Choice

Answer 1

Answer:

12.11%

Explanation:

Internal rate of return is the discount rate that equates the after-tax cash flows from an investment to the amount invested

IRR can be calculated with a financial calculator

Cash flow in year 0 = $-743,600

Cash flow each year from year 1 to 3 =  $237,600

Cash flow in year 4 = $274,800

IRR = 12.11%

To find the IRR using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the IRR button and then press the compute button.