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2 years ago

What is the irr of an investment that costs $18,500 and pays $5,250 a year for 5 years?

Business

1 answer:

saveliy_v [14]2 years ago

6 0

The Internal rate of return (IRR) of an investment is found to be 13%.

<h3>What is Internal rate of return (IRR)?</h3>

The internal rate of return (IRR) is a financial analysis metric used to estimate the profitability of possible investments.

In a discounted cash flow analysis, IRR is a discount rate that renders the net present value (NPV) among all cash flows equal to zero.
IRR calculations employ the same method as NPV calculations.
Keep in mind that the IRR is not the project's actual dollar value.
The annual return is what brings the NPV to zero.

Now, according to the question;

Total investment = $18,500.

Returns = $5,250/year

Time = 5 years

Use the formula for calculation of IRR value.

$18,500 = $5,250 {[1 - 1/(1 + IRR)5] / IRR}

Simplyfying,

IRR = 12.92%

Therefore, the internal rate of returns are calculated as 13% (approximately).

To know more about internal rate of return, here

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