Question

The net present value of a project is $260000 at the discount rate of 14.0 percent. Which of the following could be the IRR of this project?
a)11.6
b)12.29
c)11.6
d)11.96
e)16.6

Answer 1

The NPV of a project is the difference between the Present value of the future cash flows discounted at the rate of return and the initial cash outflow.

Also The IRR is the particular rate of return at which the NPV is zero

Now here when the rate of return is 14% the NpV is $260000

In order to reduce the NPv to zero we need to increase the discount rate so the present values of cash inflows will decrease sufficiently for the NPV to become zero.

So the IRR must be a rate above 14%

In the options only 16.6 is above 14%

So the correct choice is option e) 16.6