In using the internal rate of return method, the internal rate of return factor was 4.0 and the equal annual cash inflows were $40,000. The initial investment in the project must have been
A) $40,000.
B) $10,000.
C) $160,000.
D) an amount which cannot be determined.

Question

Quizplus · Accepted Answer

The formula to calculate the initial investment using the internal rate of return method is: Initial Investment = Annual cash inflows / Internal Rate of Return Factor Substituting the given values, we get: Initial Investment = $40,000 / 4.0 = $10,000 x 4 = $<<40000=40000>>40,000 Therefore, the initial investment in the project must have been $160,000 (Option C).

In Using the Internal Rate of Return Method, the Internal