Answer (D) is correct . The internal rate of return is the discount rate at which the NPV is zero. Consequently, the cash outflow equals the present value of the inflow at the internal rate of return. The present value of $1 factor for Project B’s internal rate of return is therefore .4020 ($4,000,000 cash outflow ÷ $9,950,000 cash inflow). This factor is closest to the present value of $1 for 5?periods at 20%.
Answer (A) is incorrect because This percentage results in a positive NPV for Project B.
Answer (B) is incorrect because This percentage is the approximate internal rate of return for Project A.
Answer (C) is incorrect because This percentage is the company’s cost of capital.
|
Project B’s internal rate of return is closest to
