Question

assume the following annual cash inflows and outflows: year 0: ($80,000); year 1: $10,000; year 2: $20,000; year 3: $20,000; year 4: $75,000. the internal rate of return on this investment is percent. round off the answer to two decimal places.

Answer 1

The internal rate of return (IRR) of the investment is approximately 14.82%.

The internal rate of return (IRR) is a financial metric used to calculate the profitability of an investment. It measures the annualized average rate of return at which the net present value (NPV) of cash inflows and outflows from the investment becomes zero. To find the IRR, we need to calculate the NPV of the cash flows mentioned:

Year 0: ($80,000)

Year 1: $10,000

Year 2: $20,000

Year 3: $20,000

Year 4: $75,000

Using a financial calculator or spreadsheet software, the IRR can be calculated as approximately 14.82% (rounded to two decimal places).