First of all, let's see a definition of "internal rate of return" (IRR):
"The Internal Rate of Return (IRR) is defined as the discount rate
that makes the project have a zero Net Present Value (NPV)...."
For a complete definition, please check the website. There is no
analytical formula to find the IRR of a project, so it usually must be
done either by trial and error or with appropiate software, such as
Microsoft Excel. In your case, however, the IRR is easy to find,
because the sum of the cash flows is zero. Therefore, with a discount
rate equal to 0%, the NPV of the project is zero:
NPV = -61000 + 61000/(1+0)^1 + 97000/(1+0)^2 - 97000/(1+0)^3
= -61000 + 61000 + 97000 - 97000
So a discount rate of 0% is what makes the NPV of this project to be
zero. Therefore, the Internal Rate of Return of this project is 0%.
In order to answer the second question, we simply use the NPV formula:
NPV = -61000 + 61000/(1+0.05) + 97000/(1+0.05)^2 - 97000/(1+0.05)^3
Therefore, the net present value of this project when the discount
rate is 5%, is $1,284.85
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I hope this helps! If you have any questions regarding my answer,
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