Chapter 13, Problem 6F15

To determine

Internal rate of return:

It refers to the interest rate at which the NPV (Net Present Value) is zero of all the cash flows from any project or investment. This is computed because it helps in evaluating the attractiveness of an investment. The equation of IRR is as follows:

  $0=P_0 +P_1/\left(1+IRR\right)+P_2/{\left(1+IRR\right)}_2+P_3/{\left(1+IRR\right)}_3 +...+P_n/{\left(1+IRR\right)}_n$

Where,

P denotes the cash inflows in each year.

Project’s internal rate of return.