Question

Iron Works International is considering a project that will produce annual cash flows of $38,500, $47,200, $57,900, and $23,400 over the next four years, respectively. What is the internal rate of return if the project has an initial cost of $112,500

Answer 1

18.625%

Step-by-step explanation:

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

IRR can be calculated with a financial calculator

Cash flow in year 0 = $-112,500

Cash flow in year 1 = $38,500

Cash flow in year 2 = $47,200,

Cash flow in year 3 = $57,900,

Cash flow in year 4 = $23,400

IRR = 18.625%

To find the IRR using a financial calculator:

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.