Question

The Sisyphean Company is planning on investing in a new project.This will involve the purchase of some new machinery costing

$ 450 comma 000$450,000.

The Sisyphean Company expects cash inflows from this project as detailed​ below:

Year 1	Year 2	Year 3	Year 4
$ 200 comma 000$200,000	$ 225 comma 000$225,000	$ 275 comma 000$275,000	$ 200 comma 000$200,000

The appropriate discount rate for this project is​ 16%.

The internal rate of return​ (IRR) for this project is closest​ to:

A.

​42.3%

B.

​22.7%

C.

​34.1%

D.

​39.1%

E.

​18.9%

Answer 1

The IRR is the interest rate that makes the NPV of the project equal to zero. The IRR for this project is:

0 = -$450,000 + $200,000/(1 + IRR) + $225,000/(1 + IRR)^2 + $275,000/(1 + IRR)^3 + $200,000/(1 + IRR)^4

IRR = 34.1%