Question

What is the IRR for a project with an initial investment of $180,000 that provides an annual cash inflow of $40,000 for the first three years and $25,000 per year for years four and five, and $50,000 per year for years six through eight?

a.) 12.19%

b.) 14.15%

c.) 13.23%

d.) 17.13%

Answer 1

Let irr be x%
At irr,present value of inflows=present value of outflows.

180,000=40,000/1.0x+40,000/1.0x^2+40,000/1.0x^3+25000/1.0x^4+25000/1.0x^5+50,000/1.0x^6+50,000/1.0x^7+50,000/1.0x^8

Hence x=irr=14.15%(Approx).