Final answer:
The Internal Rate of Return (IRR) is the discount rate that makes the net present value (NPV) of all cash flows from a project equal to zero. To find the IRR for a project with cash flows provided, it would typically require using iterative methods or a financial calculator.
Step-by-step explanation:
The Internal Rate of Return (IRR) for a proposed project can be calculated using the project's expected cash flows. This project has an initial investment of $235,000, expects to return $540,500 in year 1, and anticipates a loss of $310,200 in year 2. To calculate the project's IRR, which is the discount rate that makes the net present value (NPV) of all cash flows equal to zero, we would use these cash flows in the IRR formula. However, the exact IRR is not provided in the question, and it typically requires iterative methods or financial calculators to solve.
For example, the IRR formula applied to this project would be:
- Year 0 (initial investment): -$235,000
- Year 1 (gain): +$540,500
- Year 2 (loss): -$310,200
The IRR would be the rate (r) that satisfies the following equation:
0 = (-$235,000) + ($540,500 / (1 + r)) - ($310,200 / (1 + r)^2)
Given that the required rate of return for the project is 8%, the IRR would need to be compared to this to determine if the project meets the investment criteria. Without the use of financial software or a calculator, the specific IRR value cannot be accurately determined in this format.