Use the information for the question(s)below.
The Sisyphean Company is planning on investing in a new project.This will involve the purchase of some new machinery costing $450,000.The Sisyphean Company expects cash inflows from this project as detailed below: The appropriate discount rate for this project is 16%.
-The IRR for this project is closest to:
A)18.9%.
B)22.7%.
C)34.1%.
D)39.1%.

Question

Use the information for the question(s)below.
The Sisyphean Company is planning on investing in a new project.This will involve the purchase of some new machinery costing $450,000.The Sisyphean Company expects cash inflows from this project as detailed below:  The appropriate discount rate for this project is 16%.
-The IRR for this project is closest to:
A)18.9%. 
B)22.7%. 
C)34.1%. 
D)39.1%.

Quizplus · Accepted Answer

To find the Internal Rate of Return (IRR) for the project, we need to calculate the cash flows for each year and then use a trial and error method to find the discount rate at which the net present value (NPV) of the project is zero.

Year 0: -$450,000
Year 1: $125,000
Year 2: $200,000
Year 3: $300,000
Year 4: $400,000

Using a trial and error method, when we discount the cash flows at a rate of 34.1%, the NPV of the project is zero. Therefore, the IRR for this project is closest to 34.1%, which is option C.

Use the Information for the Question(s)below