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A research division of a large consumer electronics company has developed a new type of mp3 player. The project will require an immediate cash outflow of $1,665,321. The new project is expected to produce cash flows of $500,000 per year for 4 consecutive years beginning at the end of year one. What is this projects internal rate of return?.

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Based on the project's financial flows electronic companies wishes to participate in, the the project's internal rate of return is 7.75%

year. cash flow

0. -16,65,321

1. 5,00,000

2. 5,00,000

3. 5,00,000

4. 5,00,000

IRR = irr(D4:D8)

= 7.75%

What is Internal Rate of Return (IRR)?

IRR is a statistic used in financial analysis to calculate the profitability of possible investments. In a discounted cash flow analysis, IRR acts as a discount rate to bring all cash flows' net present values (NPV) to zero.

The same formula used for NPV calculations is also used for IRR estimates. IRR is not the project's actual financial value, so keep that in mind. The NPV is equal to zero due to the annual return.

Generally speaking, the more desirable an investment is to make, the greater the internal rate of return. IRR can be used to rate a variety of potential investments or projects on a pretty even basis because it is consistent for investments of various types.

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