Question

Question 4 20 pts Given the following cash flow, determine the rate of return on this investment. Year Cash Flow O - 1000 1 3400 2 -5700 3 3800 Submit your answer in decimal form. EX: Submit 0.05 if the answer if 5% Margin of error: +/- 0.005

Answer 1

The rate of return on the investment is given by:

NPV = 0 = -1000/(1+r)^0 + 3400/(1+r)^1 - 5700/(1+r)^2 + 3800/(1+r)^3

Where, r = internal rate of return

Using the excel formula, IRR function, it is computed as:

=IRR(Cash Flows)

The result is:

Year	Cash Flow
0	-1000
1	3400
2	-5700
3	3800
IRR	26.8148%

In decimal form, the rate of return on the investment = 0.268148