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George Steele (nicknamed “The Animal” by his friends) is considering investing in a new project. The...

George Steele (nicknamed “The Animal” by his friends) is considering investing in a new project. The project will need an initial investment of $2,500,000 and will generate $500,000 (after-tax) annual operating cash flows for the next ten years. Calculate the IRR for the project. Select the range that includes the correct answer.
A. The IRR for this project is less than 13 percent.
B. The IRR for this project is greater than or equal to 13 percent but less than 14 percent.
C. The IRR for this project is greater than or equal to 14 percent but less than 15 percent.
D. The IRR for this project is greater than or equal to 15 percent but less than 16 percent.
E. The IRR for this project is greater than or equal to 16 percent.
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Answer #1

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

2,500,000=500,000/1.0x+500,000/1.0x^2+................+500,000/1.0x^10

Hence x=irr=15.1%(Approx)

Hence the correct option is:

D. The IRR for this project is greater than or equal to 15 percent but less than 16 percent.

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