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 $219,000?
9.43 percent
8.29 percent
7.81 percent
8.42 percent
7.55 percent

Answer 1

Answer:

8.42 percent

Explanation:

The IRR is a discount rate that equates the after tax cash flows from an investment to the amount invested.

Using a financial calculator:

Cash flow at year zero:$-219,000

Cash flow for year one = $41,650

Cash flow for year two = $41,650

Cash flow for year three = $41,650

Cash flow for year four = $49,000

IRR = -8.42%

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