Question

Determine the internal rate of return for a project that costs $167,000 and would yield after-tax cash flows of $22,000 per year for the first 5 years, $30,000 per year for the next 5 years, and $43,000 per year for the following 5 years. a) 14.94% b) 11.97% c) 13.38% d) 11.51% e) 14.19%

Answer 1

Answer:

e) 14.19%

Explanation:

Let IRR be x% . At IRR, Present value of inflows = Present value of outflows.

167,000 = 22000/1.0x + 22000/1.0x^2 + 22000/1.0x^3 + 22000/1.0x^4 + 22000/1.0x^5 + 30,000/1.0x^6 + 30,000/1.0x^7 + 30,000/1.0x^8 + 30,000/1.0x^9 + 30,000/1.0x^10 + 43000/1.0x^11 + 43000/1.0x^12 + 43000/1.0x^13 + 43000/1.0x^14 + 43000/1.0x^15

x = 0.1419

x = 14.19%

Hence, the internal rate of return for the project is 14.19%