Casa Del Sol Property Development Company is refurbishing a 200-unit condominium complex at a cost of $1,875,000. It expects that this will lead to expected annual cash flows of $415,350 for the next seven years. What internal rate of return can the firm earn from this project? (Do not round intermediate computations. Round final answer to the nearest percent.)
A) 10%
B) 12%
C) 14%
D) 16%

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. To find the IRR for Casa Del Sol's project, we use the formula for NPV and set it to zero, solving for the discount rate (IRR). Given the information, we have an initial investment of $1,875,000 and annual cash flows of $415,350 for seven years. The IRR that fits these conditions is approximately 12%, as it is the rate that would make the present value of the cash inflows equal to the initial investment. Calculating the exact IRR requires either trial and error with different rates or using financial calculators or software designed for such calculations, which would confirm that a 12% rate closely aligns with the given cash flows and investment amount.

Casa Del Sol Property Development Company Is Refurbishing a 200-Unit