Park Co. is considering an investment that requires immediate payment of $21,530 and provides expected cash inflows of $6,500 annually for four years. Assume Park Co. requires a 7% return on its investments. What is the internal rate of return?
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Ответ:
8.00%
Explanation:
The internal rate of return is the rate of return on the investment which gives a zero net present value.
IRR can be computed using excel IRR function as shown below:
=IRR(values)
values are the cash flows arranged from the earliest( year zero ) to the latest (year 4) as contained in the attached.
IRR=8.00%
The IRR is proven thus:
NPV=-$21,530+$6500/(1+8%)^1+$6500/(1+8%)^2+$6500/(1+8%)^3+$6500/(1+8%)^4=-$1.18(which is very close to zero)
Ответ: