A firm plans to spend $50,000 on the development of a new product. Using the NPV formula with an IRR of 9% yields $65,651. An IRR of 10% yields $55,980, and an IRR of 11% yields $50,000. What is the estimated IRR of this new product development?
A) 9%
B) 10%
C) 11%
D) Cannot be determined from the information given

Question

Quizplus · Accepted Answer

The estimated IRR is the rate at which the NPV equals zero. At an IRR of 11%, the NPV is $50,000, which matches the initial investment, indicating that the IRR is 11%.

A Firm Plans to Spend $50,000 on the Development of a New