The Information Technology Club,Inc.is considering an investment that requires $20,000 and promises to return $28,090 in 3 years.The company's income tax rate is 40 percent.What is the approximate internal rate of return?

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate at which the present value of future cash flows equals the initial investment. To calculate IRR, we need to set up the equation:

$20,000 = $28,090 / (1+IRR)^3

By solving for IRR, we get approximately 0.12 or 12 percent. Therefore, the best choice is C).