Question

Diamond enterprises is considering a project that will produce cash inflows of $41,650 a year for three years followed by $49,000 in year 4. what is the internal rate of return if the initial cost of the project is $142,000?

Answer 1

8.42%

Using your financial calculator, input the initial cost of $142,000 as a cash outflow (negative), and each of the four cash inflows (positive) as $41,650 for each of the first 3 years and $49,000 in the fourth year. Then hit the IRR button on your financial calculator to compute the internal rate of return (IRR), as 8.4167, rounded to 8.42%.