Foster Industries has a project which has the following cash flows: What cash flow will the project have to generate in the fourth year in order for the project to have an internal rate of return of 15 percent?

Question

Foster Industries has a project which has the following cash flows:  What cash flow will the project have to generate in the fourth year in order for the project to have an internal rate of return of 15 percent?

Quizplus · Accepted Answer

To find out what cash flow is required in Year 4 for the project to have an internal rate of return of 15 percent, we need to use the IRR formula and trial and error to find the answer.

Using a financial calculator or Excel, we can input the cash flows given in the problem and solve for the IRR, which turns out to be 15.41%.

Then, we can use trial and error to adjust the cash flow in Year 4 until the IRR is equal to 15%.

Trying a cash flow of $103.10 in Year 4 gives an IRR of 15.00%, so that must be the answer.

Therefore, the correct answer is D) $103.10.

Foster Industries Has a Project Which Has the Following Cash