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16. Find internal rate of return of a project with an initial cost of $43,000, expected...

16. Find internal rate of return of a project with an initial cost of $43,000, expected net cash inflows of $9,550 per year for 8 years, and a cost of capital of 10.75%.

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Answer #1

IRR is the rate of return that makes NPV equal to zero

-Initial investment + Annuity * [ 1 - 1 / ( 1 + R)n] / R = 0

-43,000 + 9,550 * [ 1 - 1 / ( 1 + R)8] / R = 0

Using trial and error method i.e, after trying various values for R, let's try R as 14.897

-43,000 + 9,550 * [ 1 - 1 / ( 1 + 0.14897)8] / 0.14897 = 0

0 = 0

Therefore IRR is 15%

Please note: It is always recommended to to use a financial calculator to calculate IRR. Trial and error method can be time consuming.

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