The Robertson Firm is considering a project which costs $123,900 to undertake. The project will yield cash flows of $4,894.35 monthly for 30 months. What is the rate of return on this project?

Question

Quizplus · Accepted Answer

First, we need to calculate the total cash inflows generated by the project over its life:

Total cash inflows = $4,894.35 x 30 = $146,830.50

Next, we can use the internal rate of return (IRR) formula to solve for the rate of return that makes the present value of the cash inflows equal to the initial cost of the project:

$123,900 = $4,894.35 / (1 + r)^1 + $4,894.35 / (1 + r)^2 + ... + $4,894.35 / (1 + r)^30

Using a financial calculator or spreadsheet software, we can find that the IRR of this project is approximately 13.59%. Therefore, the best choice is C.

The Robertson Firm Is Considering a Project Which Costs $123,900