Ryder Industries is considering a project that will produce cash inflows of $92,000 a year for five years. What is the internal rate of return if the initial cost of the project is $275,000?

Select one:

a. 19.67 percent

b. 25.23 percent

c. 17.26 percent

d. 21.28 percent

e. 23.45 percent

Question

contestada

Respuesta :

wifilethbridge wifilethbridge · Answer 1 · 2019-08-28T08:55:21+02:00

Answer:

20.02%

Step-by-step explanation:

Formula : [tex]NVP = 0 =-P_0 + \frac{P_1}{(1+IRR)} + \frac{P_2}{(1+IRR)^2} + . . . +\frac{P_n}{(1+IRR)^n}[/tex]

[tex]P_0 = 275000[/tex]

n = 1,2,3,4,5

Substitute the values in the formula :

[tex] 0 =-275000 + \frac{92000}{(1+IRR)} + \frac{92000}{(1+IRR)^2} + \frac{92000}{(1+IRR)^3}+\frac{92000}{(1+IRR)^4}+\frac{92000}{(1+IRR)^5}[/tex]

[tex] 275000 = \frac{92000}{(1+IRR)} + \frac{92000}{(1+IRR)^2} + \frac{92000}{(1+IRR)^3}+\frac{92000}{(1+IRR)^4}+\frac{92000}{(1+IRR)^5}[/tex]

Solving for IRR using calculator

IRR = 20.02

Hence the internal rate of return if the initial cost of the project is $275,000 is 20.02%