(Ignore income taxes in this problem.)The following data pertain to an investment project:
$\begin{array}{lr}
\text {Investment required. }&\$ 34,055\
\text {Annual savings }&\$ 5,000\
\text {Life of the project. }&15 \text { years }\
\end{array}$
The internal rate of return is closest to:

Question

(Ignore income taxes in this problem.)The following data pertain to an investment project:
$\begin{array}{lr}
\text {Investment required.  }&\$ 34,055\
\text {Annual savings }&\$ 5,000\
\text {Life of the project. }&15 \text { years }\
\end{array}$
 The internal rate of return is closest to:

Quizplus · Accepted Answer

The internal rate of return is the discount rate that makes the net present value of a project equal to zero. In this case, the net present value is:$$NPV = -34,055 + 5,000 * \frac{1 - (1 + r)^{-15}}{r}$$Setting this equal to zero and solving for r gives:$$r = 12.08%$$Therefore, the internal rate of return is closest to 12%.

(Ignore Income Taxes in This Problem The Internal Rate of Return Is Closest To: A) 12

(Ignore Income Taxes in This Problem The Internal Rate of Return Is Closest To:
A) 12