A company has an immediate cash outlay of -$325 000 and additional subsequent cash outlays of -$6000 per year for the life of the project. They will receive cash inflows in year 3 for + $77 000 and increasing by $3000 per year until the project ends 7 years later (total of 10 years). What is the IRR?
A) 9.79%
B) 0.79%
C) 7.79%
D) 10.91%
E) 3.79%

Question

Quizplus · Accepted Answer

To calculate the IRR, we need to set up the cash flows and then find the discount rate that makes the net present value of these cash flows equal to 0.

Year 0: -$325,000
Year 1-10: -$6,000
Year 3: +$77,000
Year 4-10: +$3,000

Using a financial calculator or Excel, we can find that the IRR of these cash flows is approximately 10.91%.

Therefore, the best choice is D, with an explanation that the IRR is calculated to be 10.91%.

A Company Has an Immediate Cash Outlay of -$325 000