Question

Your firm has a cost of capital of 12% and is considering a project that costs $11,000 today and generates cash flows of $4,440 a year for 5 years. The first cash flow occurs one year from now. What is the project's IRR?

Answer 1

The project's IRR is approximately 19.28%.

Step-by-step explanation:

The project's IRR (Internal Rate of Return) is the rate at which the present value of the project's cash flows equals its initial cost. To calculate the IRR, we need to find the discount rate at which the net present value (NPV) of the project's cash flows is zero. In this case, the project costs $11,000 today and generates cash flows of $4,440 a year for 5 years, with the first cash flow occurring one year from now. To find the IRR, we can use financial calculators or software programs, or we can use trial and error by trying different discount rates until we find the one that makes the NPV equal to zero.

Using a financial calculator or software program, we can find that the project's IRR is approximately 19.28%.