Question

Determine the original investment for the following related subsequent cash flows if the internal rate of return (IRR) is 12%.

A :
$17,438.62

B :
$19,975.40

C :
$22,767.86

D :
$21,875.00

Answer 1

B : $19,975.40

Explanation:

The computation of the original investment is shown below:

Year Cash flows Discount rate at 12% Present value

1 $10,000 0.8926 $8,928.57

2 $8,500 0.79719 $6,776.15

3 $6,000 0.71178 $4,270.68

Total present value $19,975.40

In the case of IRR, the total of present value would be equivalent to the orginal investment