Heap corporation is considering an investment in a project that will have a two year life. the project will provide a 10% internal rate of return, and is expected to have a $40,000 cash inflow the first year and a $50,000 cash inflow in the second year. what investment is required in the project? (ignore income taxes.) click here to view exhibit 13b-1 and exhibit 13b-2, to determine the appropriate discount factor(s) using the tables provided. multiple choice $74,340 $77,660 $81,810 $90,000

$77,660

Explanation:

IRR signifies the interest rate where the net present value equals zero.

In order to reverse work the investment, the present values of the cash flow from this new project - when discounted at 10% should equal the amount of investment.

IRR signifies that Initial outlay - PV Cash flows @ 10% = 0

We calculate the present values as,

PV = 40,000 * (1 / 1+0.10)     +      50,000 * [1 / ((1+0.10)^2)}

PV = $77,685.9 (rounded off)

This is closest to $77,660, which is the initial outlay required to to generate above mentioned pc vash flows and an irr of 10%.

Hope that helps.

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