Question

A project has an initial requirement of $698,700 for fixed assets and $61,000 for net working capital. The fixed assets will be depreciated to a zero book value over the 4-year life of the project and will be worthless at the end of the project. All of the net working capital will be recouped after 4 years. The expected annual operating cash flow is $218,000. What is the project's internal rate of return if the tax rate is 35 percent?
Answer 7.72 percent
8.41 percent
8.69 percent
9.11 percent
9.97 percent
.

Answer 1

FV = 0
FV = -61000 + (218000-698700/4)/(1+IRR) + (218000-698700/4)/(1+IRR)^2
+ (218000-698700/4)/(1+IRR)^3 + (218000-698700/4)/(1+IRR)^4
IRR = 9.97