Question

Ryder Industries is considering a project that will produce cash inflows of $92,000 a year for five years. What is the internal rate of return if the initial cost of the project is $275,000?
Select one:

a. 19.67 percent

b. 25.23 percent

c. 17.26 percent

d. 21.28 percent

e. 23.45 percent

Answer 1

Answer:

20.02%

Step-by-step explanation:

Formula : $NVP = 0 =-P_0 + \frac{P_1}{(1+IRR)} + \frac{P_2}{(1+IRR)^2} + . . . +\frac{P_n}{(1+IRR)^n}$

$P_0 = 275000$

n = 1,2,3,4,5

Substitute the values in the formula :

$0 =-275000 + \frac{92000}{(1+IRR)} + \frac{92000}{(1+IRR)^2} + \frac{92000}{(1+IRR)^3}+\frac{92000}{(1+IRR)^4}+\frac{92000}{(1+IRR)^5}$

$275000 = \frac{92000}{(1+IRR)} + \frac{92000}{(1+IRR)^2} + \frac{92000}{(1+IRR)^3}+\frac{92000}{(1+IRR)^4}+\frac{92000}{(1+IRR)^5}$

Solving for IRR using calculator

IRR = 20.02

Hence the internal rate of return if the initial cost of the project is $275,000 is 20.02%