A program has initial costs of $1,300.If the benefits of the program are $500 each year and costs are $200 each year, what is the internal rate of return over 5 years?
A).01
B).1
C).05
D).5

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the rate at which the net present value of all the cash flows (both positive and negative) from a project or investment equal zero. In this case, the initial cost is $1,300, and the net benefit each year is $300 ($500 benefit - $200 cost). Over 5 years, the cash flows can be represented as follows: Year 0: -$1,300, Years 1-5: +$300. The IRR that makes the net present value of these cash flows equal to zero is approximately 5% or 0.05. This can be calculated using financial calculators or software designed for IRR calculations.

A Program Has Initial Costs of $1,300