Use the following information to answer the next two questions. The Debonair Hotel is considering a kitchen investment with a ten year life. The investment will require an initial outlay of $120,780 and provide increased cash inflows of $24,000 per annum and generate increased running cost cash outflows of $6,000 per annum. There will be no salvage value at the end of the life of the investment.
-What is the internal rate of return for the Debonair Hotel's kitchen investment?

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, the IRR can be found by setting the NPV equation to zero and solving for the discount rate. Given the cash inflows and outflows, the IRR for the Debonair Hotel's kitchen investment is closest to 8%.

Use the Following Information to Answer the Next Two Questions