Question

your firm is considering a project that will produce annual cash flows of $38,500, $47,200, $57,900, and $23,400 over the next four years, respectively. what is the internal rate of return if the project has an initial cost of $112,500?

Answer 1

The student's question involves finding the Internal Rate of Return (IRR) for a project with specific annual cash flows and an initial investment cost. Using a financial calculator or spreadsheet to input these figures will allow one to iterate and find the IRR that sets the net present value of the cash flows to zero.

Step-by-step explanation:

The student is asking about the calculation of the Internal Rate of Return (IRR) for a project with an initial investment and a series of unequal annual cash flows.

The IRR is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. To find the IRR, one would typically use financial calculator or spreadsheet software, because the IRR equation cannot be solved analytically due to its complexity when dealing with different cash flows.

The cash flows provided by the student are $38,500, $47,200, $57,900, and $23,400 over the next four years, respectively, with an initial cost of $112,500.

By inputting these cash flows into a financial calculator or spreadsheet and iterating to make the NPV equal to zero, we can determine the IRR for the project.