Question

Barron, Inc. is considering a four-year project that has an initial outlay or cost of $90,000. The future cash inflows from its project are $50,000, $30,000, $30,000, and $30,000 for years 1, 2, 3 and 4, respectively. Darrox uses the internal rate of return method to evaluate projects. What is the approximate IRR for this project?a. The IRR is between 12% and 20%b. The IRR is about 28.89%c. The IRR is less than 12%d. The IRR is about 22.80%

Answer 1

D. The IRR is about 22.80%

Step-by-step explanation:

If we use excel instead of trial and error method, it is easy to determine the Internal rate of return. As there is no cost of capital, it is challenging to determine IRR through the trial and error method.

The following image shows the IRR of this project is 22.80%.