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A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows:Year Cash Flow0 –$ 34,000 1 15,000 2 17,000 3 13,000 If the required return is 14 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal)

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Answer:

Explanation:

The IIR is the rate at which if the cash flow of project is discounted to present value , it becomes nil. This actually gives the rate of return on the project.

In the present case , initial cash outflow = 34000

NPV of project = - 34000 + 15000 / (1+r )+ 17000 / ( 1+r)² + 13000 / ( 1+r)³

r is IIR

r = 15.75

15000 / 1.1575 + 17000/  1.1575² + 13000/  1.1575³

= 12958 + 12688+ 8382 = 34028

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