Answer:
19.17%
Explanation:
initial cost = -$130,000
cash flow year 1 = $78,000 - $49,000 = $29,000
cash flow year 2 = $29,000 + $1,000 = $30,000
cash flow year 3 = $30,000 + $1,000 = $31,000
cash flow year 4 = $31,000 + $1,000 = $32,000
cash flow year 5 = $32,000 + $1,000 = $33,000
cash flow year 6 = $33,000 + $1,000 = $34,000
cash flow year 7 = $34,000 + $1,000 = $35,000
cash flow year 8 = $35,000 + $1,000 + $23,000 = $59,000
using an excel spreadsheet and the IRR function, we can determine the project's IRR = 19.17%
The IRR is the discount rate at which the NPV of the project would equal 0. If you are going to try to solve it by trial and error you can prepare an equation and then try to solve it by approximation:
$130,000 = $29,000/(1+r) + $30,000/(1+r)² + $31,000/(1+r)³ + $32,000/(1+r)⁴ + $33,000/(1+r)⁵ + $34,000/(1+r)⁶ + $35,000/(1+r)⁷ + $59,000/(1+r)⁸
Just replace r and start increasing or decreasing as the value approaches to $130,000
