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Financial Management: The Internal Rate of Return

Year........ Undiscounted free cash flows
0..............(380,000)
1...............20,000
2...............30,000
3...............200,000
4...............175,000
5...............130,000
6................145,000

Required rate of return = 15%

Question: The internal rate of return is closest to which of the following answers?
a. 20.50%
b. 18.20%
c. 16.45%
d. 14.25%
e. none of the above are within 1% of the correct answer. (Please provide the correct answer.)

Solution Preview

The internal rate of return is used in capital budgeting, it's the interest rate that makes net present value of all cash flow ...

Solution Summary

This solution provides a brief discussion of the IRR concept and then goes into the specific calculation itself, indicating that it can be done both by hand and from using Excel. A Word document is attached which contains the IRR calculation portion of the response.

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