Question

If a project's IRR is 13% and the project provides annual cash flows of $15,000 for 4 years, how much did the project cost?

a. $44,617
b. $52,200
d. $60,000
d. $72,747

Answer 1

Answer: a. $44,617

Explanation:

The Internal Rate of Return brings the NPV of a project to zero which means that the cost of the project will be the Net present value of the cash inflows using the IRR as the discount rate.

This is a constant payment so can be treated as an annuity.

Present value of annuity = Annuity * Present value interest factor of annuity, 4 years , 13%

= 15,000 * 2.9745

= 44,617.5

= $44,617 approx