Texas petro inc. intends to drill a new line of oil. the project would cost $5 million initially and will generate a cash flow of $1.2 million per year in the future, starting from next year. The IRR of the new project is 24% (Option C)
In fiscal analysis, the internal rate of return( IRR) is a statistic used to calculate the profitability of possible investments. IRR is a reduced rate that, in a blinked cash inflow analysis, reduces all cash overflows' net present values( NPV) to zero.
Generally speaking, investment is more favorable to make a lesser internal rate of return. IRR can be used to rank a variety of implicit assets or systems on enough indeed base because it's harmonious for investments of all types. Generally speaking, the investment with the loftiest IRR would be regarded as stylish when comparing options with other analogous attributes.
Perpetual Annual Cash Flow
Perpetual Value = quantum/ Rate
thus, Rate quantum/ Investment
Internal Rate of Return of the project = Cash inflow per year/ Investment
IRR = (1.2 / 5) * 100 = 0.24 * 100 = 24%
Thus, the Internal Rate of Return of the project is 24% that's option( C)
To know more about IRR, refer to this link:
https://brainly.com/question/14306761
#SPJ4
COMPLETE QUESTION:
Texas Petro Inc. intends to drill a new line of oil. The project would cost $5 million initially and will generate a cash flow of $1.2 million per year forever in the future, starting from next year.
1. What is the IRR of the new project?
A. 10%
B. 22%
C. 24%
D. 26%
