You are considering an investment opportunity that will cost you $8,000 up front,but return a single cash flow of $18,000 6 years from now.What is the IRR for this investment?
A)125%
B)12.3%
C)14.5%
D)37.5%
E)15%

Question

Quizplus · Accepted Answer

To calculate IRR, we need to find the discount rate that will make the sum of the present values of all cash inflows equal to the initial investment. Using the given information, we can calculate the present value of the $18,000 cash flow as follows:
PV = $18,000 / (1 + r)^6
where r is the discount rate (IRR).

Setting the present value equal to the initial investment ($8,000), we get:
$8,000 = $18,000 / (1 + r)^6
Solving for r, we get:
r = 14.5%

Therefore, the IRR for this investment is 14.5%, which corresponds to option C.

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