The following data are available on a proposed investment project:
$\begin{array}{|l|r|}
\hline \text { Initial investment } & \$ 142,500 \
\hline \text { Annual Cash Inflows } & \$ 30,000 \
\hline \text { Life of the investment } & 8 \text { years } \
\hline
\end{array}$
$$\begin{array} { | l | l |}
\hline \text { Required Rate of Return } & 10 \%\\hline
\end{array}$$
Which of the following statements best describes the internal rate of return on the proposed investment project? (Ignore income taxes in this problem.)
A) It is between 11% and 12%.
B) It is between 12% and 13%.
C) It is between 13% and 14%.
D) It is less than the required rate of return.

Question

The following data are available on a proposed investment project:
$\begin{array}{|l|r|}
\hline \text { Initial investment } & \$ 142,500 \
\hline \text { Annual Cash Inflows } & \$ 30,000 \
\hline \text { Life of the investment } & 8 \text { years } \
\hline
\end{array}$
$$\begin{array} { | l | l |} 
\hline \text { Required Rate of Return } & 10 \%\\hline
\end{array}$$
Which of the following statements best describes the internal rate of return on the proposed investment project? (Ignore income taxes in this problem.)
A) It is between 11% and 12%.
B) It is between 12% and 13%.
C) It is between 13% and 14%.
D) It is less than the required rate of return.

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate that makes the net present value (NPV) of the cash flows equal to zero. By trial and error or using financial calculators, the IRR for this project is found to be between 13% and 14%.

The Following Data Are Available on a Proposed Investment Project