Question

A proposed project will require an initial investment of $1,000,000 and will generate net operating cash inflows of $250,000 per year for five years. What is the internal rate of return?

a. 11%
b. 13%
c. Less than 9%
d. Over 15%

Answer 1

c. Less than 9%

Step-by-step explanation:

Step 1

Determine the Cash Flow Summary of the Project.

Year 0 = - $1,000,000

Year 1 = $250,000

Year 2 = $250,000

Year 3 = $250,000

Year 4 = $250,000

Year 5 = $250,000

Step 2

Calculate the Internal Rate of Return (IRR)

Using a Financial Calculator the Following parameters would be set :

- $1,000,000 CFj

$250,000 CFj

$250,000 CFj

$250,000 CFj

$250,000 CFj

$250,000 CFj

Shift IRR/YR 7.9308 or 7.93%