A capital budgeting project has a net investment of $1,000,000 and is expected to generate net cash flows of $350,000 annually for 4 years. What is the internal rate of return?

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 using financial calculators or spreadsheet software by inputting the initial investment as a negative value (-$1,000,000) and the annual net cash flows of $350,000 for 4 years. The correct IRR for these cash flows is approximately 14.96%.

A Capital Budgeting Project Has a Net Investment of $1,000,000