CMA Intermediate · Financial Management and Business Data Analytics · Capital Budgeting
Sundaram Textiles is evaluating a machine costing ₹1,00,000 that will return a single cash inflow of ₹1,33,100 at the end of Year 3, with no other cash flows. What is the project's IRR?
The IRR is 10%. With one inflow of ₹1,33,100 after three years against an outlay of ₹1,00,000, the growth factor is 1.331, which equals 1.10 cubed. The rate that equates present value of the inflow to the outlay is therefore 10% per year.
- A10%Correct
- B11%
- C9%
- D33.1%
Explanation
IRR solves 1,00,000 = 1,33,100/(1+r)^3. So (1+r)^3 = 1.331, which is 1.1^3, giving r = 10%. Option 33.1% is wrong because it ignores compounding over three years and treats the total gain as an annual rate.
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