Question

Find the IRR of the following investments and determine which should be accepted, given a

required rate of return of 10%:

Investment A: An investment costing $31,140 promising a cash flow of $3,000 per year for 15

years.

Investment B: An investment costing $46,000 promising a cash flow of $6,000 per year for 20

years.

Answer 1

IRR for investment A= $\frac{3000\times15-31140}{31140}\times100\%\\$

$=44.5\%$

IRR for investment B=$\frac{6000\times20-46000}{46000}\times100\%$

$=$ $160\%$

Investment B should be accepted because it has a higher IRR.