Your company is considering a project with the following cash flows:
Initial Outlay = $3,000,000
Cash Flows Year 1-8 = $547,000
Compute the internal rate of return on the project.
A) 6.38%
B) 8.95%
C) 9.25%
D) 12.34%

Question

Quizplus · Accepted Answer

To calculate the internal rate of return (IRR), we need to find the discount rate at which the present value of the future cash flows equals the initial outlay. Using a financial calculator or spreadsheet function, we find that the IRR for this project is approximately 9.25%. This indicates that the project's cash inflows are large enough to produce a return that exceeds the cost of capital, making it a good investment for the company. Therefore, the best choice is C.

Your Company Is Considering a Project with the Following Cash