A new IT server for a company will cost $406,152.00 today. The company expects the server will create an incremental cash flow to the firm of $134,378.00 per year. The company wants an 8.00% return for all capital budgeting projects. The company will run the server for the next 5 years. What is the IRR of this project

IRR of this project is 19.5%.

Explanation:

The internal rate of return (IRR) is a metric used in capital budgeting to estimate the profitability of potential investments.

The internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.

0 = - 406,152 +

we will find IRR by substitution such that the RHS of the equation is equal to zero.

in this case the value for r which will make the equation zero is = 0.195

= IRR of this project is 19.5%.

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