Internal Rate of Return A project is estimated to cost $288,116 and provide annu

Question

Internal Rate of Return A project is estimated to cost $288,116 and provide annual net cash flows of $76,000 for five years Present Value of an Annuity of $1 at Compound Interest 10% 12% 2090 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 Year 15% 690 0.943 0.909 0.893 0.870 1.833 1.736 1.690 2.673 2.487 2.402 2.283 3.465 3.170 3.037 2.855 4.212 3.791 4.917 4.355 4.111 5.582 4.868 4.564 4.160 6.210 5.335 4.968 4.487 6.802 5.759 5.328 4.772 7.360 6.145 1.626 4 3.605 3.352 3.784 8 10 5.650 5.019 Determine the internal rate of return for this project, using the Present Value of an Annuity of $1 at Compound Interest table shown above

Explanation / Answer

Let irr be x%

At irr,present value of inflows=present value of outflows.

288116=76000/1.0x+76000/1.0x^2+............+76000/1.0x^5

(288116/76000)=1/1.0x+1/1.0x^2+...........+1/1.0x^5

1/1.0x+1/1.0x^2+...........+1/1.0x^5=3.791

Hence looking at present value annuity table(10%,5 years);we get irr=10%

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