Question

Project M has an initial cost of $68,221, and its expected net cash inflows are $18,250 per year for 6 years. The firm has a WACC of 13 percent, and Project M’s risk would be similar to that of the firm’s existing assets. Calculate Project M’s internal rate of return (IRR).

	a.	8.21%
	b.	15.46%
	c.	13.00%
	d.	12.37%
	e.	60.51%

Answer 1

Project M
IRR is the rate at which NPV =0
IRR	0.154592595
Year	0	1	2	3	4	5	6
Cash flow stream	-68221	18250	18250	18250	18250	18250	18250
Discounting factor	1	1.154593	1.333084	1.539169	1.7771131	2.051842	2.369041
Discounted cash flows project	-68221	15806.44	13690.06	11857.05	10269.464	8894.449	7703.539
NPV = Sum of discounted cash flows
NPV Project M =	1.31665E-06
Where
Discounting factor =	(1 + IRR)^(Corresponding period in years)
Discounted Cashflow=	Cash flow stream/discounting factor
IRR=	15.46%