An investment project has an initial cost,and then generates inflows of $50 a year for the next five years.The project has a payback period of 3.6 years.What is the project's internal rate of return?
A) 11.18%
B) 12.05%
C) 13.47%
D) 14.66%
E) 15.89%

Question

Quizplus · Accepted Answer

To calculate the internal rate of return (IRR), we need to find the discount rate at which the project's net present value (NPV) is zero. We can use trial and error, or we can use a financial calculator or spreadsheet function. Using trial and error, we can try different discount rates until we find the one that makes the NPV equal to zero. This gives us an IRR of approximately 12.05%, which is closest to answer choice B.

An Investment Project Has an Initial Cost,and Then Generates Inflows