A project involves an immediate expenditure of $1 000, and will require additional expenditures of $100 a year for the next ten years, starting one year from now. After ten years it yields an income of $3 000. What is its rate of return?
A)3.5%
B)4.5%
C)5.5%
D)6.5%
E)7.5%

Question

Quizplus · Accepted Answer

The rate of return is calculated by finding the interest rate that makes the net present value (NPV) of the cash flows equal to zero. The cash flows are: -$1,000 initially, -$100 each year for 10 years, and +$3,000 at the end of 10 years. Solving for the interest rate that balances these cash flows gives approximately 5.5%.

A Project Involves an Immediate Expenditure of $1 000, and Will