CS Professional · Strategic Management and Corporate Finance · Project Evaluation
A project of Narmada Foods Ltd costs ₹1,00,000 and returns ₹1,21,000 in a single lump sum at the end of Year 2. What is its IRR?
The IRR is 10%. It is the rate at which ₹1,21,000 received after two years discounts to exactly ₹1,00,000, since 1.10 squared equals 1.21, making NPV zero.
- A10%Correct
- B21%
- C11%
- D5%
Explanation
IRR is the rate r where 1,00,000 = 1,21,000/(1+r)^2. So (1+r)^2 = 1.21, giving 1+r = 1.10 and r = 10%. The 21% option ignores compounding over two years.
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