Suppose that you are considering the development of a residential subdivision. The development will require you to spend $300,000 today to acquire the land. You will also have to spend $750,000 in both years 1 and 2 in order to build the houses. You expect to make $1.5 million in year 3 and $2 million in year 4 from sales of the completed homes. What is the internal rate of return of this project

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ewomazinoade ewomazinoade · Answer 1 · 2021-03-23T01:40:29+01:00

Answer:

32.52%

Explanation:

Internal rate of return is the discount rate that equates the after-tax cash flows from an investment to the amount invested

IRR can be calculated with a financial calculator

Cash flow in year 0 = $-300,000.

Cash flow in year 1 and 2 = $-750,000

Cash flow in year 3 = $1.5 million

Cash flow in year 4 = $2 million

IRR = 32.52%

To find the IRR using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the IRR button and then press the compute button.