Muscle Company is investing in a giant crane. It is expected to cost $6.5 million in initial investment, and it is expected to generate an end-of-year cash flow of $3.0 million each year for three years. Calculate the IRR.
A)14.6 percent
B)16.4 percent
C)18.2 percent
D)22.1 percent

Question

Quizplus · Accepted Answer

The IRR is the discount rate that makes the net present value (NPV) of the cash flows equal to zero. By trial and error or using financial calculator/software, the IRR for the given cash flows is approximately 18.2 percent.

Muscle Company Is Investing in a Giant Crane