Question

Heap Corporation is considering an investment in a project that will have a two year life. The project will provide a 10% internal rate of return, and is expected to have a $40,000 cash inflow the first year and a $50,000 cash inflow in the second year. What investment is required in the project? (Ignore income taxes.) Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided

Answer 1

Answer:

$77,686

Explanation:

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

To find the amount invested, discount the cash flows using the IRR.

∑ 40,000 / 1.1 + 50,000 / 1.1² = $77,686 (to the nearest dollar)

The amount invested is $77,686.

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