A company is considering an iron ore extraction project that requires an initial investment of $1,400,000 and will yield annual cash flows of $613,228 for three years
The company's discount rate is 9%. Calculate IRR.
Present value of ordinary annuity of $1:
10% 12% 14% 15% 16% 18% 20%
1 0.909 0.893 0.877 0.870 0.862 0.847 0.833
2 1.736 1.690 1.647 1.626 1.605 1.566 1.528
3 2.487 2.402 2.322 2.283 2.246 2.174 2.106
4 3.170 3.037 2.914 2.855 2.798 2.690 2.589
A) 15%
B) 17%
C) 14%
D) 13%
A .A)
Calculation of IRR:
Initial investment $1,400,000
Present value of cash inflows 613,228
Ordinary Annuity PV factor ($1,400,000 / $613,228 ) $2.283
Net cash Annuity
Time inflow PV Factor Present Value
1-4 years Cash flow $613,228 2.283 $1,400,000
0 Initial Investment 1,400,000
Net present value $0
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