McKinsey & Co. invested in a project that was to last for 2 years. The project has an internal rate of return of 12%. The project is expected to produce cash inflows of $70,000 in the first year and $80,000 in the second year. The project cost is:

Question

Quizplus · Accepted Answer

The correct answer is A because the project cost is $126,270. This can be calculated using the following formula:Project cost = Present value of cash inflows / (1 + IRR)^nwhere:IRR = internal rate of returnn = number of yearsIn this case, the IRR is 12% and the number of years is 2. The present value of the cash inflows is $143,760. Therefore, the project cost is $126,270.