Question

The Sisyphean company is planning on investing in a new project. This will involve the purchase of some new machinery costing $450,000. The Sisyphean Company expects cash inflows from this project as detailed below. Year 1: $200,000 Year 2: $225,000 Year 3: $275,000 Year 4: $200,000

The appropriate discount rate for this project is 16%. The annual rate of return (IRR) for this project is closest to:

Could you please show all steps and explain what each thing means?

Answer 1

Internal rate of return is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$450,000. It is entered with a negative sign since it is a cash outflow.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of project is 34.12%.

In case of any query, kindly comment on the solution.