A firm is considering a project requiring an investment of £100,000. The project would generate annual cash inflows of £26,380 per year for the next five years. The approximate internal rate of return for 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 cash flows from a project equal to zero. In this case, the IRR is approximately 10%, as it is the rate at which the present value of the cash inflows (£26,380 per year for five years) equals the initial investment (£100,000).

A Firm Is Considering a Project Requiring an Investment of £100,000