Suppose you invest $100,000 in a new machine today, and you earn a $150,000 return in one year. What is the internal rate of return on this investment?

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is calculated by setting the net present value (NPV) of all cash flows from the investment equal to zero. In this case, the cash flow is a $100,000 investment followed by a $150,000 return. The IRR equation would be $100,000 = $150,000 / (1 + IRR), solving for IRR gives 0.5 or 50 percent.

Suppose You Invest $100,000 in a New Machine Today, and You