Economics question please help?

Question

A firm was considering a capital project with an investment of $324 thousand. The gains are expected to occur over five years as follows: yr 1=$100 thousand, yr 2=$125 thousand, yr 3= $150 thousand, yr 4=$125 thousand, and yr 5=$100 thousand. which of the following three rates of return approximately is expected a. 10%, b.20%, or c.25%? explain how you determined which is the correct answer (without using software froma a business calculator or computer that would provide the exact answer without thingking).

Answer 1

total profit is about $275k, spread out over 5 years on an initial investment of $324k.   So we almost but not quite doubled our money over 5 years, which would be close to 20% a year.  So its not 10%, that would only be a $160k profit, and if it was 25% it would be doubled in 4 years, and this is less than that.  So the answer has to be B.

Answer 2

c.25%

You need to find rate from following formula:

NPV= -324/(1+r)^0; + 100/(1+r)^1 + 125/(1+r)^2 + 150/(1+r)^3 +

+ 125/(1+r)^4 + 100/(1+r)^5 = 0

Just put relevant rate of return into formula and check which one is closest to zero, for your case putting r=25% is closest one (more correct would be r=24.5225%).