You are considering investing in a project with the following year-end after-tax cash flows: Year 1: $5,000
Year 2: $3,200
Year 3: $7,800
If the initial outlay for the project is $12,113, compute the project's IRR.
A) 14%
B) 10%
C) 32%
D) 24%

Question

Quizplus · Accepted Answer

IRR is the discount rate that makes the NPV of a project equal to zero. In this case, the NPV is:-12,113 + 5,000/(1+IRR) + 3,200/(1+IRR)^2 + 7,800/(1+IRR)^3 = 0Solving for IRR using a financial calculator gives IRR = 14%.

You Are Considering Investing in a Project with the Following