Internal Rate of Return A project is estimated to cost $305,992 and provide annu

Question

Internal Rate of Return

A project is estimated to cost $305,992 and provide annual net cash flows of $92,000 for six years.

Determine the internal rate of return for this project, using the Present Value of an Annuity of $1 at Compound Interest table shown above.
%

Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192

Explanation / Answer

Dear student thankyou for using chegg Please refer the answer and gives thumbsup. Calculation of Internal rate of Return Statement showing Cash flows Particulars Time PVAf 15% Amount($) PV Cash Outflows                -              1.00       -3,05,992.00       -3,05,992.00 PV of Cash outflows = PVCO       -3,05,992.00 Cash inflows Yr1-yr6          3.784             92,000.00         3,48,128.00 PV of Cash Inflows =PVCI         3,48,128.00 NPV= PVCI - PVCO             42,136.00 Statement showing Cash flows Particulars Time PVAf20% Amount($) PV Cash Outflows                -              1.00       -3,05,992.00       -3,05,992.00 PV of Cash outflows = PVCO       -3,05,992.00 Cash inflows Yr1-yr6          3.326             92,000.00         3,05,992.00 PV of Cash Inflows =PVCI         3,05,992.00 NPV= PVCI - PVCO                            -   As we know at Internal Rate of Return, NPV is 0. NPV is 0 when the discount rate is 20% So Internal Rate of Return is 20%

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