Question

The capital budgeting director of Sparrow Corporation is evaluating a project that costs $200,000, is expected to last for 10 years and produce cash flows of $44,503 per year. What is the project's IRR?

Answer 1

Answer:

IRR of the project is 18%

Explanation:

The first table showing the cash flows for the 10 years and the formula for computing the IRR.

The second table showing the IRR of the project, which is 18%.

Computing the IRR by using the excel formula, which as:

=IRR(values,guess)

where

values are from year 0 to year 10

guess will be 0

So,

=18%

NOTE: The cash flow of year 0 is negative because it is costs of the project, which is paid.