(Appendix 13A)The following data are available on a proposed investment project:
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

(Appendix 13A)The following data are available on a proposed investment project: 
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

To find the internal rate of return, we need to find the discount rate that will make the net present value of the project equal to zero. Using the NPV formula, we can solve for the internal rate of return using trial and error, or we can use Excel's IRR function. Using the given data, the internal rate of return is approximately 13.73%. Therefore, the closest choice to this value is C, which states that the IRR is between 13% and 14%. Choices A and B are lower than the actual IRR, and choice D is not true since the IRR is greater than the required rate of return of 10%.

(Appendix 13A)The Following Data Are Available on a Proposed Investment