What is the internal rate of return of a project that has an initial outlay of $150,000 and net cash flows of $40,000 for 5 years?

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. In this case, without calculating the exact IRR, we can estimate it based on the given information. The project has an initial outlay of $150,000 and generates $40,000 annually for 5 years. The total cash inflow is $200,000 ($40,000 x 5), which is more than the initial investment. The IRR must be positive and is likely to be in the lower range since the total inflow does not vastly exceed the outlay. Among the given options, "Between 10% and 11%" is a reasonable estimate for the IRR, considering the size of the inflows relative to the initial outlay.

What Is the Internal Rate of Return of a Project