Question

Donald’s Inc. is evaluating a project with annual free cash flows: Period 0: $-175, Period 1: $-175, Period 2: $200. What is the project’s IRR?

a) 5.0%
b) 6.2%
c) 8.5%
d) 10.0%

Answer 1

The project's internal rate of return (IRR) is approximately 5.0%.

Step-by-step explanation:

The Internal Rate of Return (IRR) for the project can be calculated by finding the discount rate that makes the net present value (NPV) of the project equal to zero. In this case, we have annual free cash flows of -$175 in Period 0, -$175 in Period 1, and $200 in Period 2.

Using trial and error, we can calculate that the IRR for this project is approximately 5.0%.