Jella Cosmetics is considering a project that costs 800000 a

Jella Cosmetics is considering a project that costs $800,000 and is expected to last for 10 years and produce future cash flows of

?$175,000 per year. If the appropriate discount rate for this project is 16 percent, what is the? project\'s IRR?

Solution

Project’s Internal Rate of Return = 17.53% or 18% [Rounded to nearest whole number]

Internal Rate of Return Factor         

= Initial Investment / Net annual cash inflow

= $800,000 / 175,000

= 4.571428

From the Present Value Annuity Factor Table [PVIFA], We can find that the discount rate (IRR) corresponding to the factor of 4.571428 for 10 Years is approximately equals to 17.53%

Therefore, Project’s Internal Rate of Return[IRR] = 17.53% or 18% [Rounded to nearest whole number]