Answer:
13.96%
Explanation:
Internal rate of return (IRR) is the interest rate at which net present value of all cash flows becomes zero. It measure the profitability of the investment.
IRR of Current Project
Year 0 1 2 3
Cash flows -$3,000 $1,200 $1,300 $1,400
Net Present Value at 10% = [ ( -30,000 x (1 + 10%)^-0 ) + ( 1,200 x (1 + 10%)^-1 ) + ( 1,200 x (1 + 10%)^-2 ) + ( 1,400 x (1 + 10%)^-3 ) ] = $197.39
Net Present Value at 12% = [ ( -30,000 x (1 + 12%)^-0 ) + ( 1,200 x (1 + 12%)^-1 ) + ( 1,200 x (1 + 12%)^-2 ) + ( 1,400 x (1 + 12%)^-3 ) ] = $93.1
IRR = Lower rate + [ Lower rate NPV / (Lower rate NPV - Higher rate NPV) ] (higher rate - lower rate)
IRR = 10% + [ 197.39 / ($197.39 - $93.1) ] (12% - 10%)
IRR = 13.8%
Due to rounding factor the nearest option and the correct option is 13.96%