Use the following information to answer the following question.
Below are the expected after-tax cash flows for Projects Y and Z.Both projects have an initial cash outlay of $20,000 and a required rate of return of 17%.
Project Y Project Z

-Analysis of a machine indicates that it has a cost of $5 375,000.The machine is expected to produce cash inflows of $1,825,000 in year 1; $1,775,000 in year 2; $1,630,000 in year 3; $1,585,000 in year 4; and $1,650,000 in year 5.What is the machine's IRR?
A)12.16%
B)17.81%
C)23.00%
D)11.11%

Question

Use the following information to answer the following question.
Below are the expected after-tax cash flows for Projects Y and Z.Both projects have an initial cash outlay of $20,000 and a required rate of return of 17%.
Project Y Project Z
 
-Analysis of a machine indicates that it has a cost of $5 375,000.The machine is expected to produce cash inflows of $1,825,000 in year 1; $1,775,000 in year 2; $1,630,000 in year 3; $1,585,000 in year 4; and $1,650,000 in year 5.What is the machine's IRR?
A)12.16% 
B)17.81% 
C)23.00% 
D)11.11%

Quizplus · Accepted Answer

To solve for IRR, we must find the discount rate that will make the present value of the cash inflows equal to the cost of the machine. We can use a financial calculator or spreadsheet software to solve for IRR, or we can use trial and error with a present value table. Using trial and error with a present value table, we find that the IRR is approximately 17.81%, which is closest to answer choice B. Therefore, the best choice is B.

Use the Following Information to Answer the Following Question