Heckrwee Industries is considering a project that would require an initial investment of $101,000. The project would result in cost savings of $62,000 in year 1 and $70,000 in year 2. The internal rate of return is

Question

Quizplus · Accepted Answer

To find the internal rate of return, we need to solve for the discount rate that would make the present value of the cost savings equal to the initial investment:

PV(cost savings) = -$101,000 + $62,000/(1 + r)^1 + $70,000/(1 + r)^2

Using a financial calculator or spreadsheet software, we can find that the internal rate of return is approximately 19.27%. Since this is between 18% and 20%, the best choice is C. This means that the project's return is greater than the cost of capital, so it would be a good investment for Heckrwee Industries.

Heckrwee Industries Is Considering a Project That Would Require an Initial