(Ignore income taxes in this problem. )An investment of P dollars now will yield cash inflows of $3,000 at the end of the first year and $2,000 at the end of the fourth year.If the internal rate of return for this investment is 20%,then the value of P is:

Question

Quizplus · Accepted Answer

The internal rate of return is the discount rate that makes the net present value of an investment equal to zero. In this case, the net present value of the investment is:$$NPV = -P + 3,000/(1+0.20) + 2,000/(1+0.20)^4$$Setting this equal to zero and solving for P gives:$$P = 3,000/(1+0.20) + 2,000/(1+0.20)^4 = $3,463$$

(Ignore Income Taxes in This Problem