Question

GoodStuff, Inc. is considering investing in Project Awesome. The Project costs $120,000 and is expected to generate $64,000 in year one, $67,000 in year two, $56,000 in year three, and $45,000 in year four. GoodStuff, Inc.'s required rate of return for the project is 10%. The internal rate of return for the Project is

Answer 1

35.27%

Step-by-step explanation:

Internal rate of return is the discount rate that equates the after-tax cash flows from an investment to the amount invested

IRR can be calculated with a financial calculator

Cash flow in year 0 = -$120,000

Cash flow in year 1 = $64,000

Cash flow in year 2 = $67,000

Cash flow in year 3 = $56,000

Cash flow in year 4 = $45,000

IRR = 35.27%

To find the IRR using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the IRR button and then press the compute button.