A project has an initial cost of $68,300 and cash flows of $38,700, $102,300, an

Question

A project has an initial cost of $68,300 and cash flows of $38,700, $102,300, and -$18,100 for Years 1 to 3, respectively. If the required rate of return for this investment is 8.7 percent, should you accept it based solely on the internal rate of return rule? Why or why not?

a Yes; because the IRR exceeds the required return b Yes; because the IRR is a positive rate of return c You cannot apply the IRR rule in this case because there are multiple IRRs. d No; because the IRR is a negative rate of return e No; because the IRR is less than the required return

Explanation / Answer

a Yes; because the IRR exceeds the required return

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