Kannan Enterprise has a project with an initial outlay of $40,000,followed by three years of annual incremental cash flows of $35,000.The terminal cash flow of the project is $10,000.Assuming a discount rate of 10%,which of the following is the correct equation to solve for the IRR of the project? A)$40,000 = $35,000(1.12)¹ + $35,000(1.12)² + $45,000(1.12)³ B)$40,000 = $35,000(1 + IRR)¹ + $35,000(1+IRR)² + $45,000(1+IRR)³ C)$40,000 = $35,000/(1.12)^IRR + $35,000/(1.12)^IRR + $45,000/(1.12)^IRR D)$40,000 = $35,000(1+IRR)^-1 + $35,000(1.IRR)^-2 + $45,000(1+IRR)^-3

Question

Quizplus · Accepted Answer

The IRR is found by setting the present value of cash inflows equal to the initial outlay. The correct equation discounts each cash flow by (1+IRR) raised to the power of the year number.

Kannan Enterprise Has a Project with an Initial Outlay of $40,000,followed