You have an investment opportunity that requires an initial investment of $5,500 today and will pay $11,500 in one year. What is the IRR of this opportunity?
You have an investment opportunity that requires an initial investment of $5,500 today and will pay $11,500 in one year. What is the IRR of this opportunity?
Chapter5: The Time Value Of Money
Section: Chapter Questions
Problem 27P
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Question
You have an investment opportunity that requires an initial investment of $5,500 today and will pay $11,500 in one year. What is the IRR of this opportunity?
Expert Solution
Step 1
The acronym IRR stands for internal rate of return. It shows the actual return wherein the present value of cash inflows is equal to the present value of cash outflows. The company should reject the project if the internal rate of return is less than the required rate of return and vice-versa.
Here,
Initial Investment = $5,500
Cash flows after one year = $11,500
To Find:
IRR =?
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