A project has the following cash flows year 0 500000 year 1 - PMP Practice Questions
Question
A project has the following cash flows: Year 0: -$500,000 Year 1: $200,000 Year 2: $250,000 Year 3: $300,000
If the required rate of return is 15%, what is the IRR?
Answers
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correct
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Explanation
Correct Answer: B
The IRR is the discount rate that makes the NPV equal to zero. Using trial and error or a financial calculator, the IRR is 21%. This means the project earns a return of 21%, which is higher than the required rate of return of 15%, making it potentially acceptable from an IRR perspective.
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