Interest rate Present value of an annuity
of $1 factor for year 5
10% 3.7908
12% 3.6048
14% 3.4331
Calculate the internal rate of return to determine whether it should accept this project.
The project should be accepted because it will earn more than 14%.
The project should be accepted because it will earn more than 10%.
The project will earn more than 12% but less than 14%. At a hurdle rate of 14%, the project should be rejected.
The project should be rejected because it will earn less than 14%.
The project should be rejected because it will not earn exactly 14%.
Answer : The IRR of the project is 15.24%.
The project should be accepted since it will earn more than 14%.
The NPV at 10% is $ 12351.6
The NPV at 12% is $7329.6
The NPV at 14% is 2693.7
Since NPV is positive at 14%, we may safely conclude that the IRR of the project is greater than 14%.
The NPV at 15% is 90,508.19
The NPV at 16% is 88,405.93
By interpolation, we can determine that the IRR of the project is 15.24%.
