Question

Determine the internal rate of return for a project that costs -$97,500 and would yield after-tax cash flows of $15,000 the first year, $17,000 the second year, $20,000 the third year, $22,000 the fourth year, $26,000 the fifth year, and $32,000 the sixth year.

Answer 1

the internal rate of return is 8.26%

Step-by-step explanation:

The computation of the internal rate of return is as follows:

Let us assume the irr be x%

As we know that at the internal rate of return the net present value is zero that means the inflows cash flows would be equivalent to the outflows cash flows at their present values

Now

$97,500 = $15,000 ÷ 1.0x + $15,000 ÷ 1.0x^2 + $20,000 ÷ 1.0x^3 + $22,000 ÷ 1.0x^4 + $26,000 ÷ 1.0x^5 + $32,000 ÷ 1.0x^6

After solving this, the x = 8.26%

hence, the internal rate of return is 8.26%