Question

DYI Construction Co. is considering a new inventory system that will cost $650,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $150,000 in year three, and $180,000 in year four. DYI's required rate of return is 9%. What is the internal rate of return of this project?

a) 11.57%
b) 15.13%
c) 10.87%
d) 23.85%

Answer 1

d. 23.84%

Step-by-step explanation:

Years Cash-flow

0 -650,000

1 350,000

2 325,000

3 150,000

4 180,000

Using MS Excel IRR function

Internal rate of return = IRR(Cashflow year 0, 1, 2, 3, 4)

Internal rate of return = 23.84%

So, the internal rate of return of this project is 23.84%.