Lawrence Corp.is considering the purchase of a new piece of equipment.When discounted at a hurdle rate of 8%,the project has a net present value of $24,580.When discounted at a hurdle rate of 10%,the project has a net present value of ($28,940).The internal rate of return of the project is:

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate that makes the net present value (NPV) of the project equal to zero. Therefore, if the NPV is positive at a certain discount rate, the IRR is greater than that rate, and if the NPV is negative, the IRR is lower.

In this case, the NPV is positive at a discount rate of 8%, and negative at 10%. This means that the IRR is between 8% and 10%, as it is the rate at which the NPV changes from positive to negative. Therefore, the best choice is C.