Question

An investment requires an investment of ( $ 440 ) today and generates a single cash flow of ( $ 650 ) in three years. This project has an internal rate of return of tubular?

Answer 1

To calculate the internal rate of return (IRR) of the investment, we need to find the discount rate at which the present value of the cash flow equals the initial investment. In this case, the IRR is approximately 10.77%.

Step-by-step explanation:

To calculate the internal rate of return (IRR) of the investment, we need to find the discount rate at which the present value of the cash flow equals the initial investment. In this case, the initial investment is -$440 (negative because it's an outflow) and the cash flow in three years is $650. To solve for the IRR, we need to find the discount rate that makes the present value of the cash flow equal to the initial investment:

-$440 = $650 / (1 + r)^3

Simplifying the equation, we get:

-440 = 650 / (1 + r)^3

To find r, we can use logarithmic functions or a financial calculator. Solving for r, we find r ≈ 0.1077 or 10.77%. Therefore, the internal rate of return of the investment is approximately 10.77%.