A project produces the following cash ﬂows over the next ﬁve years: $600, $200, $350, $400 and $500, respectively. The initial cost of the project is $1,400. What is the internal rate of return on this
Project?
A) - 4.56%
B) 3.67%
C) 12.87%
D) 14.39%
E) The rate cannot be computed with certainty.

Question

Quizplus · Accepted Answer

We can use trial and error or financial calculator to solve for the internal rate of return. By using the trial and error method, we can plug in different discount rates until we get a present value of the cash inflows equal to the initial cost of the project. By doing so, we find that at a discount rate of 14.39%, the sum of the present value of cash inflows equals the initial cost of $1,400. Therefore, the internal rate of return is 14.39%.

A Project Produces the Following Cash ﬂOws Over the Next