Question

Calculate the IRR of a machine that is purchased for $5,500, sold at the end of year 4 for $2,500, and produces the following cash flows: o Year 1: $700. o Year 2: $800. o Year 3: $900. o Year 4:$1,000. Group of answer choices 2.21% -0.52% 3.72%

Answer 1

Answer:

2.21%

Explanation:

The internal rate of return is the rate of return on the project where the present value of future cash flows equals the initial investment outlay. It is known as the break-even discount rate since, at IRR, the net present value is zero.

The IRR can be determined using the excel IRR function as shown thus:

=IRR(values)

values are the cash flows from years 0-4

Find attached excel file for IRR computation

Download xlsx