Answer:
Therefore, the internal rate of return is lower than the expected return, for this the project must be rejected
Explanation:
Solution
Given that
The cash flow of a project consists of the following amount from year 0 to 3 = −$161,900, $60,800, $62,300, and $75,000
The rate of return required = 13%
Now,
Let the Internal rate of return be y%
Thus,
At internal rate of return, the value of present inflows is the same as the value of present outflows.
So,
Internal rate of return = Value of present inflows = Value of present outflows
=161900 =60800/1.0y +62300/1.0 y ^2 + 75000/ 1,0 y^3
Therefore, y = internal rate of return 10.41%
