A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows:Year Cash Flow0 - $ 34,000 1 15,000 2 17,000 3 13,000 If the required return is 14 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal)

Question

Jazmine Knapp

Business

10 September, 18:16

A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows:Year Cash Flow0 - $ 34,000 1 15,000 2 17,000 3 13,000 If the required return is 14 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal)

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Jaylen George · Answer 1

The IIR is the rate at which if the cash flow of project is discounted to present value, it becomes nil. This actually gives the rate of return on the project.

In the present case, initial cash outflow = 34000

NPV of project = - 34000 + 15000 / (1+r) + 17000 / (1+r) ² + 13000 / (1+r) ³

r is IIR

r = 15.75

15000 / 1.1575 + 17000 / 1.1575² + 13000 / 1.1575³

= 12958 + 12688 + 8382 = 34028