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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

A project is estimated to generate cash flows of $40,000 per year for 10 years. The cost of the project is $226,000. What is the internal rate of return for this project?
A. 8%
B. 10%
C. 12%
D. 15%

To determine

IRR:

Internal Rate of Return (IRR) is the rate at which the NPV of the project is 0 or we can say that IRR is the rate of return at which the project is at breakeven. IRR is calculated using excel or approximation method.

To Calculate:

The Internal Rate of Return of the Project

Explanation

The Internal Rate of Return of the Project is calculated as follows:

    Annuity Cash inflow (A) $ 40,000
    Initial Investment (B) $ 226,000
    Number of Years

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