Project X has a cost of $53 847 and its expected net cash flows are $12 000 p.a.for the next eight years.What is the project's internal rate of return?
A)13%
B)12%
C)15%
D)9.5%

Question

Quizplus · Accepted Answer

To calculate the internal rate of return, we need to find the discount rate at which the present value of the expected cash flows equals the initial cost of the project. Using a financial calculator or Excel, we can solve for the internal rate of return (IRR) with the following inputs:

- Cost = -$53,847 (negative because it's a cash outflow)
- Cash Flows = $12,000 per year for 8 years
- IRR = ?

The IRR calculation yields 15.02%, which is closest to C)15%. This means that the project is expected to generate a return of 15% per year, which is higher than the cost of capital or hurdle rate for most companies. Therefore, the project is likely to be accepted as a profitable investment.

Project X Has a Cost of $53 847 and Its