Simpson, Inc. is considering a five-year project that has an initial o

Simpson, Inc. is considering a five-year project that has an initial outlay or cost of $80,000.

The respective future cash inflows from its project for years 1, 2, 3, 4 and 5 are: $15,000, $25,000, $35,000, $45,000, and $55,000. Simpson uses the internal rate of return method to evaluate projects. What is the project’s IRR?
A) The IRR is less than 22.50%.
B) The IRR is about 24.16%.
C) The IRR is about 26.16%.
D) The IRR is over 26.50%.

ANSWER

Answer: C
Explanation: C) Using a financial calculator or software program like Excel or trial and error (and rounding off to two digits), we get IRR = 26.16%.