Internal rate of return: Whitbird Co. is looking to install new equipment that will cost $2,750,000. The cash flows expected from the project are $612,335, $891,005, $1,132,000, and $1,412,500 for the next four years. What is Whitbird's internal rate of return? (Round to the nearest percent.)

Question

Quizplus · Accepted Answer

To calculate the internal rate of return (IRR), we need to find the discount rate that makes the present value of cash inflows equal to the cost of the investment. We can use Excel or a financial calculator to solve for the IRR.

Using Excel, we can input the cash flows in column A and then use the formula "=IRR(A1:A5)" to get the IRR.

Alternatively, using a financial calculator, we can use the cash flows as follows:

CF0 = -2,750,000
CF1 = 612,335
CF2 = 891,005
CF3 = 1,132,000
CF4 = 1,412,500

Then, we can solve for IRR and get 15%.

Therefore, the best choice is C) 15%.

Internal Rate of Return: Whitbird Co