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A particular investment requires an initial cash outflow of $110,000. The investment is expected to produce...

A particular investment requires an initial cash outflow of $110,000. The investment is expected to produce net cash flows of $20,000, $25,000, $30,000, $38,000, and $50,000 in years one, two, three, four, and five, respectively. To the nearest tenth of a percent, the internal rate of return on this investment is

A) 48.2%

B) 12.5%

C) 67.5%

D) No IRR exists for these cash flows
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Answer #1

Let irr be x%
At irr,present value of inflows=present value of outflows.

110,000=20,000/1.0x+25,000/1.0x^2+30,000/1.0x^3+38,000/1.0x^4+50,000/1.0x^5

Hence x=irr=12.5%(Approx).

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