Darrox,Inc.is considering a four-year project that has an initial outlay or cost of $90,000.The future cash inflows from its project are $50,000,$30,000,$30,000,and $30,000 for years 1,2,3 and 4,respectively.Darrox uses the internal rate of return method to evaluate projects.What is the approximate IRR for this project?
A)The IRR is less than 12%.
B)The IRR is between 12% and 20%.
C)The IRR is about 22.80%.
D)The IRR is about 28.89%.

Question

Quizplus · Accepted Answer

The IRR is about 22.80%.The IRR is the discount rate that makes the NPV of a project equal to zero. In this case, the NPV is:NPV = -90,000 + 50,000/(1+IRR) + 30,000/(1+IRR)^2 + 30,000/(1+IRR)^3 + 30,000/(1+IRR)^4Setting NPV = 0 and solving for IRR using a financial calculator gives IRR = 22.80%.