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Boulderado has come up with a new composite snowboard.Development will take Boulderado four years and cost $250,000 per year,with the first of the four equal investments payable today upon acceptance of the project.Once in production the snowboard is expected to produce annual cash flows of $200,000 each year for 10 years.Boulderado's discount rate is 10%.
-The IRR for Boulderado's snowboard project is closest to:
A)10.4%.
B)10.0%.
C)11.0%.
D)15.1%.

Question

Quizplus · Accepted Answer

To calculate the IRR, we need to find the discount rate that sets the net present value (NPV) of the project equal to zero. Given the annual cash flows of $200,000 for 10 years, we can calculate the NPV of the project using the formula:

NPV = -250,000 + (200,000 / 1.1) + (200,000 / 1.1^2) + ... + (200,000 / 1.1^10)

NPV = -$250,000 + $155,059 + $129,825 + ... + $36,330

Using a financial calculator or spreadsheet software, we can find that the IRR for this project is approximately 11.0%. Therefore, the closest answer choice is C, 11.0%.

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