Question

A company is considering an iron ore extraction project that requires an initial investment of​ $1,400,000 and will yield annual cash inflows of​ $613,228 for three years. The​ company's discount rate is​ 9%. Calculate IRR. Present value of ordinary annuity of​ $1:
​10% ​12% ​14% ​15% ​ 16% ​18% ​20%

1 0.909 0.893 0.877 0.870 0.862 0.847 0.833

2 1.736 1.690 1.647 1.626 1.605 1.566 1.528

3 2.487 2.402 2.322 2.283 2.246 2.174 2.106

4 3.170 3.037 2.914 2.855 2.798 2.690 2.589


a. 13%

b. 15%

c. 14%

d. 17%

Answer 1

Answer:

b. 15% 

Explanation:

IRR is the discount rate that equates the after tax cash flows from an investment to the amount invested.

IRR can be calculated using a financial calculator:

Cash flow in year 0 = $-1,400,000 

Cash flow each year for 3 years = $613,228

IRR = 15%

To find the IRR using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the IRR button and then press the compute button.

I hope my answer helps you