Question

Iron Works International is considering a project that will produce annual cash flows of $37,400, $46,100, $56,800, and $22,300 over the next four years, respectively. What is the internal rate of return if the project has an initial cost of $113,600?

Answer 1

16.73%

Explanation:

The computation of the internal rate of return is shown below:-

Let irr be x%

At irr, the present value of inflows = Present value of outflows.

So,

$113,600 = 37,400 ÷ 1.0x + 46,100 ÷ 1.0x^2 + 56,800 ÷ 1.0x^3 + 22,300 ÷ 1.0x^4

x = irr = 16.73%

Therefore for computing the internal rate of return we simply applied the above formula.