Suppose an industrial building can be purchased for $2,500,000 and is expected to yield cash flows of $180,000 each of the next five years (Note: assume payments are made at end of year). If the building can be sold at the end of the fifth year for $2,800,000, calculate the IRR for this investment over the five year holding period.
A) 0.09%
B) 4.57%
C) 9.20%
D) 10.37%

Question

Quizplus · Accepted Answer

The IRR is the discount rate that makes the net present value (NPV) of the cash flows equal to zero. By calculating the IRR for the given cash flows ($180,000 annually for 5 years and $2,800,000 at the end of year 5), the IRR is found to be approximately 9.20%.

Suppose an Industrial Building Can Be Purchased for $2,500,000 and Is