The Harrison Corporation has analyzed an investment opportunity costing $150,000 and determinedthat the net present value is $8,705. Harrison's management estimated that the investment wouldhave equal annual net cash flows for twelve years, a salvage value of $15,000 after twelve years, andused a discount rate of 12%. What was the internal rate of return associated with the investmentopportunity? Note: Present value tables are needed.

Question

Quizplus · Accepted Answer

Since the net present value (NPV) of the investment is positive at a discount rate of 12%, it indicates that the internal rate of return (IRR) must be higher than the discount rate used, which is 12%. The IRR is the rate at which the NPV equals zero, and a positive NPV at 12% means the investment returns more than 12%.

The Harrison Corporation Has Analyzed an Investment Opportunity Costing $150,000