Question

Turnbull Corp. is in the process of constructing a new plant at a cost of $30 million. It expects the project to generate cash flows of $13,000,000, $23,000,000, and 29,000,000 over the next three years. The cost of capital is 20 percent. What is the internal rate of return that Turnbull can earn on this project

Answer 1

43.6%

Step-by-step explanation:

The internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested.

The IRR can be calculated using a financial calculator.

Cash flow in year 0 = - $30 million

Cash flow in year 1 = $13 million

Cash flow in year 2 = $23 million

Cash flow in year 3 = $29 million

IRR = 43.6%

To find the IRR using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the IRR button and then press the compute button

I hope my answer helps you