Assume that an industrial building can be purchased for $1,500,000 today,is expected to yield cash flows of $80,000 for each of the next five years,and can be sold at the end of the fifth year for $1,625,000.Calculate the internal rate of return (IRR)for this transaction.
A)3.14%
B)7.07%
C)9.20%
D)10.37%

Question

Quizplus · Accepted Answer

The IRR is the discount rate that makes the net present value (NPV) of all cash flows equal to zero. By calculating the IRR for the given cash flows ($80,000 annually for 5 years and $1,625,000 at the end of year 5), the IRR is found to be approximately 7.07%.

Assume That an Industrial Building Can Be Purchased for $1,500,000