Question

You have been asked to review a project with an initial cost of $51,400 and will generate annual cash flows of $17,350 for the next 5 years. Compute the internal rate of return?

20.43%

22.13%

22.70%

18.39%

19.41%

Answer 1

Answer is 20.43%

Initial Investment = $51,400
Annual Cash Flow = $17,350
Life of Project = 5 years

Let IRR be i%

NPV = -$51,400 + $17,350/(1+i) + $17,350/(1+i)^2 + $17,350/(1+i)^3 + $17,350/(1+i)^4 + $17,350/(1+i)^5
0 = -$51,400 + $17,350/(1+i) + $17,350/(1+i)^2 + $17,350/(1+i)^3 + $17,350/(1+i)^4 + $17,350/(1+i)^5

Using financial calculator, i = 20.43%

IRR of the project is 20.43%