Thom Corporation is considering an investment opportunity with the following expected net cash inflows: Year 1, $230,000; Year 2, $370,000; Year 3, $360,000. The company uses a discount rate of 13%, and the initial cost of the investment is $720,000. Present Value of $1:
$$\begin{array} { | r | c | c | c | c | c | c | }
\hline & 10 \% & 11 \% & 12 \% & 13 \% & 14 \% & 15 \% \
\hline 1 & 0.909 & 0.901 & 0.893 & 0.885 & 0.877 & 0.870 \
\hline 2 & 0.826 & 0.812 & 0.797 & 0.783 & 0.769 & 0.756 \
\hline 3 & 0.751 & 0.731 & 0.712 & 0.693 & 0.675 & 0.658 \
\hline 4 & 0.683 & 0.659 & 0.636 & 0.613 & 0.592 & 0.572 \
\hline 5 & 0.621 & 0.593 & 0.567 & 0.543 & 0.519 & 0.497 \
\hline
\end{array}$$ The IRR of the project will be ________.

Question

Thom Corporation is considering an investment opportunity with the following expected net cash inflows: Year 1, $230,000; Year 2, $370,000; Year 3, $360,000. The company uses a discount rate of 13%, and the initial cost of the investment is $720,000. Present Value of $1:
$$\begin{array} { | r | c | c | c | c | c | c | } 
\hline & 10 \% & 11 \% & 12 \% & 13 \% & 14 \% & 15 \% \
\hline 1 & 0.909 & 0.901 & 0.893 & 0.885 & 0.877 & 0.870 \
\hline 2 & 0.826 & 0.812 & 0.797 & 0.783 & 0.769 & 0.756 \
\hline 3 & 0.751 & 0.731 & 0.712 & 0.693 & 0.675 & 0.658 \
\hline 4 & 0.683 & 0.659 & 0.636 & 0.613 & 0.592 & 0.572 \
\hline 5 & 0.621 & 0.593 & 0.567 & 0.543 & 0.519 & 0.497 \
\hline
\end{array}$$ The IRR of the project will be ________.

Quizplus · Accepted Answer

The IRR is the discount rate that makes the NPV of the cash flows equal to zero. By calculating the NPV at 13% and 14%, we find that the NPV is positive at 13% and negative at 14%, indicating that the IRR is between these two rates.

Thom Corporation Is Considering an Investment Opportunity with the Following