An investment that cost $30,000 provided annual cash inflows of $9,000 per year for five years. The desired rate of return is 10%. The internal rate of return from the investment was (Do not round your PV factors and intermediate calculations.):

Question

Quizplus · Accepted Answer

To calculate the IRR, we can use the following calculation:
PV factor = Annual cash inflow / Desired rate of return = 9000/0.1 = 90000
PV of investment = 30000
IRR = PV of investment / PV factor = 30000/90000 = 0.3333 or 33.33%
Since the IRR is greater than the desired rate of return of 10%, the investment is expected to be profitable and exceeds the minimum required return. Therefore, the best choice is C.

An Investment That Cost $30,000 Provided Annual Cash Inflows of $9,000