Colex wishes to bid on a contract that is expected to yield after-tax net cash flows of $25,000 in year 1, $30,000 in year 2, and $35,000 per year in years 3-8. To obtain the contract, Colex will need to invest $110,000 to reconfigure a packaging system, $20,000 (after-tax) to retrain current employees, and $15,000 (after-tax) on an environmental impact study that is required to be completed on acceptance of the contract. What is the project's internal rate of return?
A) 16.7%
B) 14.1%
C) 16.2%
D) 14.9%

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is calculated using the net present value (NPV) equation set to zero, with cash flows discounted at the project's IRR. Given the complexity and the specific numbers involved, the IRR calculation would typically require financial calculator or spreadsheet software to solve. The correct answer, 14.9%, is obtained by inputting the initial investment and the series of net cash flows into an IRR calculation formula or tool.

Colex Wishes to Bid on a Contract That Is Expected