A company is considering an iron ore extraction project that requires an initial investment of $1,300,000 and will yield annual cash flows of $789,314 for two years.The company's discount rate is 9%.Calculate IRR. Present value of ordinary annuity of $1:
$$\begin{array} { r r r r r r r r }
& 10 \% & 12 \% & 14 \% & 15 \% & 16 \% & 18 \% & 20 \% \
1 & 0.909 & 0.893 & 0.877 & 0.870 & 0.862 & 0.847 & 0.833 \
2 & 1.736 & 1.690 & 1.647 & 1.626 & 1.605 & 1.566 & 1.528 \
3 & 2.487 & 2.402 & 2.322 & 2.283 & 2.246 & 2.174 & 2.106 \
4 & 3.170 & 3.037 & 2.914 & 2.855 & 2.798 & 2.690 & 2.589
\end{array}$$

Question

A company is considering an iron ore extraction project that requires an initial investment of $1,300,000 and will yield annual cash flows of $789,314 for two years.The company's discount rate is 9%.Calculate IRR. Present value of ordinary annuity of $1:
$$\begin{array} { r r r r r r r r } 
& 10 \% & 12 \% & 14 \% & 15 \% & 16 \% & 18 \% & 20 \% \
1 & 0.909 & 0.893 & 0.877 & 0.870 & 0.862 & 0.847 & 0.833 \
2 & 1.736 & 1.690 & 1.647 & 1.626 & 1.605 & 1.566 & 1.528 \
3 & 2.487 & 2.402 & 2.322 & 2.283 & 2.246 & 2.174 & 2.106 \
4 & 3.170 & 3.037 & 2.914 & 2.855 & 2.798 & 2.690 & 2.589
\end{array}$$

Quizplus · Accepted Answer

The IRR is the rate that makes the NPV zero. Using the annuity table, the factor for IRR is $1,300,000 / $789,314 ≈ 1.647, which corresponds to 14%.

A Company Is Considering an Iron Ore Extraction Project That