Question

Your company is considering a new project opportunity. It would need to immediately invest $220. In return, in the next 4 years it will receive the following amounts of money: In 1 year: $80 In 2 years: $70 In 3 years: $50 In 4 years: $60 The required annual rate of return is 5%.

The Internal Rate of Return for this project is:_______

Answer 1

The Internal Rate of Return (IRR) for this project is approximately 8.85%.

Step-by-step explanation:

The Internal Rate of Return (IRR) is the discount rate that makes the net present value (NPV) of the project equal to zero. To calculate the IRR, we need to find the rate at which the present value of the cash inflows equals the initial investment. In this case, we have:

Year 1: $80 / (1 + 0.05)^1 = $76.19

Year 2: $70 / (1 + 0.05)^2 = $65.60

Year 3: $50 / (1 + 0.05)^3 = $43.78

Year 4: $60 / (1 + 0.05)^4 = $47.15

To find the IRR, we need to solve the following equation:

$220 = $76.19 + $65.60 + $43.78 + $47.15 + (IRR * -$220)

Using a financial calculator or software, we find that the IRR for this project is approximately 8.85%.

Answer 2

7.54 %

Step-by-step explanation:

Year 0 = - $220

Year 1 = $80

Year 2 = $70

Year 3 = $50

Year 4 = $60

I /yr = 5%

Internal Rate of Return for this project is 7.54 %