An investment cost $10,000 with expected cash flows of $3,000 a year for 5 years.At what discount rate will the project's IRR equal its discount rate?
A)15.24 percent
B)27.22 percent
C)0 percent
D)16.67 percent
E)21.08 percent

Question

Quizplus · Accepted Answer

The Internal Rate of Return (IRR) is the discount rate at which the net present value (NPV) of all the cash flows (both positive and negative) from a project or investment equals zero. In this case, the IRR would be the rate that makes the present value of the $3,000 annual cash flows over 5 years equal to the initial investment of $10,000. The correct answer, 15.24 percent, is the rate that satisfies this condition.

An Investment Cost $10,000 with Expected Cash Flows of $3,000