Frazier Fudge has a project with an initial outlay of $40,000, followed by three years of annual incremental cash flows of $35,000. At the end of the third year, equipment will be sold producing additional cash flow of $10,000
Assuming a discount rate of 10%, which of the following is the correct equation to solve for the IRR of the project?
A) $40,000 = $35,000(1.12)1 + $35,000(1.12)2 + $45,000(1.12)3
B) $40,000 = $35,000(1 + IRR)1 + $35,000(1 + IRR)2 + $45,000(1 + IRR)3
C) $40,000 = $35,000/(1.12)IRR + $35,000/(1.12)IRR + $45,000/(1.12)IRR
D) $40,000 = $35,000/(1 + IRR) + $35,000/(1.IRR) + $45,000/(1 + IRR)
Answer: D
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