Question

The Steel Factory is considering a project that will produce annual cash flows of $36,800, $45,500, $56,200, and $21,800 over the next four years, respectively. What is the internal rate of return if the initial cost of the project is $135,000?

Answer 1

rate of return is 7.56 %

Step-by-step explanation:

given data

annual cash flows C1 = $36,800

annual cash flows C2 = $45,500

annual cash flows C3 = $56,200

annual cash flows C4 = $21,800

initial cost = $135,000

to find out

internal rate of return

solution

we will apply here initial cost formula for all annual cash flow that is express as

initial cost =
`(C1)/((1+r)) +(C2)/((1+r)^2) +(C3)/((1+r)^3) +(C4)/((1+r)^4)` .......................1

here C is annual cash flow and r is rate of return

put here value and we get r

initial cost =
`(C1)/((1+r)) +(C2)/((1+r)^2) +(C3)/((1+r)^3) +(C4)/((1+r)^4)`

135000 =
`(36800)/((1+r)) +(45500)/((1+r)^2) +(56200)/((1+r)^3) +(21800)/((1+r)^4)`

solve it and we get

r = 0.0756

so rate of return is 7.56 %