Question

Chronic Pain Clinic has estimated the following cash flows associated with a new project. The project cost of capital (discount rate) is 10 percent. Year Expected Net Cash Flow 0 ($800,000) 1 400,000 2 400,000 3 400,000 What is the project’s IRR? A. 18.5 percent B. 19.9 percent C. 20.4 percent D. 21.8 percent E. 23.4 percent

Answer 1

Answer:

E. 23.4 percent

Explanation:

The computation of the internal rate of return is shown below

Given that

The project cost of capital is 10%

And, the year and net cash flow is

Year             Expected Net Cash Flow

0                      ($800,000)

1                        400,000

2                        400,000

3                         400,000

Now we apply the following formula

= IRR()

So the internal rate of return is 23.38% i.e. 23.4%