Answer (A) is correct . The internal rate of return (IRR) of a capital project is the rate at which the net present value (NPV) of its future cash flows equals zero. To find this project’s ? NPV, therefore, it is necessary to discount the cash flows at the appropriate rate (14%) as follows: Net Cash PV Present Year Inflows Factor Value 1 $1,000 0.877 $???877 2 2,000 0.769 1,538 3 4,000 0.675 2,700 4 4,000 0.592 2,368 $7,483
Answer (B) is incorrect because The amount of $8,530 results from treating the cash inflows as occurring at the beginning of the year instead of at year end.
Answer (C) is incorrect because The amount of $11,000 results from failing to take the time value of money into account.
Answer (D) is incorrect because The amount of $12,540 results from multiplying times the 14% rate rather than discounting by that rate.
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The initial cost of this project amounted to