Question

Lowell Communications, Inc., has been installing a fiber-optic network at a cost of $18 million. The firm expects annual cash flows of $3.7 million over the next 10 years. What is this project's internal rate of return? (Do not round intermediate computations. Round final answer to the nearest percent.)

A) 10%
B) 12%
C) 14%
D) 16%

Answer 1

The internal rate of return (IRR) for this project is approximately 11.7%.

Step-by-step explanation:

The internal rate of return (IRR) is the discount rate at which the present value of cash inflows equals the initial investment cost. To calculate the IRR, we need to find the rate of discount that makes the present value of the cash flows equal to the cost of the project. In this case, the cost of the project is $18 million, and the annual cash flows for the next 10 years are $3.7 million. By using financial formulas or a financial calculator, the IRR for this project is found to be approximately 11.7%.