Calculate the Internal Rate of Return on a capital project that will require an immediate cash outflow of $55,000 and will provide positive cash flows of $9,000 at the end of each year for 11 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, the IRR can be found using financial calculators or software designed for financial analysis by inputting the initial investment of $55,000 as a negative cash flow followed by 11 annual positive cash flows of $9,000. The IRR for this set of cash flows is approximately 11.35% compounded annually, which matches option E. Calculating IRR manually requires trial and error with different discount rates until the NPV equals zero, but it's more efficient to use financial calculators or software for precise calculations.

Calculate the Internal Rate of Return on a Capital Project