Question

Iron Works International is considering a project that will produce annual cash flows of $36,900, $45,600, $56,300, and $21,800 over the next four years, respectively. What is the internal rate of return if the project has an initial cost of $114,100?

Answer 1

Answer:

15.87%

Explanation:

Internal rate of return is a method of calculating an investment’s rate of return. The term internal refers to the fact that the calculation excludes external factors, such as the risk-free rate, inflation, the cost of capital, or financial risk.

Let IRR be x%

IRR, present value of inflows=present value of outflows.

114100=36900/1.0x+45600/1.0x^2+56300/1.0x^3+21800/1.0x^4

Hence

x = IRR = 15.87%