Glossimer Thread Company is evaluating an investment that will cost $760,000 and will yield cash inflows of $255,000 in the first year,$325,000 in the second year,and $380,000 in the third and the final year.Use the table below and determine the internal rate of return. Present value of $1:
$$\begin{array} { | c | c | c | c | c | c | }
\hline & 8 \% & 9 \% & 10 \% & 11 \% & 12 \% \
\hline 1 & 0.926 & 0.917 & 0.909 & 0.901 & 0.893 \
\hline 2 & 0.857 & 0.842 & 0.826 & 0.812 & 0.797 \
\hline 3 & 0.794 & 0.772 & 0.751 & 0.731 & 0.712 \
\hline 4 & 0.735 & 0.708 & 0.683 & 0.659 & 0.636 \
\hline 5 & 0.681 & 0.65 & 0.621 & 0.593 & 0.567 \
\hline
\end{array}$$ The IRR of the project will be ________.

Question

Glossimer Thread Company is evaluating an investment that will cost $760,000 and will yield cash inflows of $255,000 in the first year,$325,000 in the second year,and $380,000 in the third and the final year.Use the table below and determine the internal rate of return. Present value of $1:
$$\begin{array} { | c | c | c | c | c | c | } 
\hline & 8 \% & 9 \% & 10 \% & 11 \% & 12 \% \
\hline 1 & 0.926 & 0.917 & 0.909 & 0.901 & 0.893 \
\hline 2 & 0.857 & 0.842 & 0.826 & 0.812 & 0.797 \
\hline 3 & 0.794 & 0.772 & 0.751 & 0.731 & 0.712 \
\hline 4 & 0.735 & 0.708 & 0.683 & 0.659 & 0.636 \
\hline 5 & 0.681 & 0.65 & 0.621 & 0.593 & 0.567 \
\hline
\end{array}$$ The IRR of the project will be ________.

Quizplus · Accepted Answer

By using a financial calculator or Excel, the internal rate of return (IRR) of the project is computed to be 11.37%. Since the cash inflows exceed the cost of the investment, the IRR is greater than the cost of capital which is typically used as an investment hurdle rate. Therefore, the project should be accepted, and the best answer is D, which indicates that the IRR is more than 11%.

Glossimer Thread Company Is Evaluating an Investment That Will Cost