Chester National Bank is considering adding a new branch bank.It knows that it will cost $2.5 million to build the branch and it believes that it will generate $214,526 per year for the next 25 years.Chester National Bank requires a return of 10% on all new projects it undertakes.What is this project's expected rate of return or internal rate of return? (Round to the nearest whole percent)
A)0%
B)7%
C)12%
D)2%
E)25%

Question

Quizplus · Accepted Answer

The project's expected rate of return or internal rate of return (IRR) is approximately 7%. This is calculated by finding the discount rate that makes the net present value (NPV) of the cash flows equal to zero. The IRR is the rate at which the present value of the cash inflows equals the initial investment of $2.5 million.

Chester National Bank Is Considering Adding a New Branch Bank