Question

A project will generate annual cash flows of $237,000 for each of the next three years, and a cash flow of $273,800 during the fourth year. The initial cost of the project is $764,800. What is the internal rate of return of this project

Answer 1

IRR = 10.68%

Step-by-step explanation:

The annual cash flow of the project = $237000

Time period for annual cash flow of $237000 = 3 years

In the fourth year, the cash flow = $273800

Initial cost of the project = $764800

Now we have to find the interest rate of return by using the given information.

Let the internal rate of return = x%

Now, present value of inflows = The present value of outflows.

764800 = 237000/1.0x + 237000/1.0x^2 + 237000/1.0x^3 + 273800/1.0x^4

Thus, x = irr = 10.68%