A firm is considering a proposed project with the following cash flows. Should t

Question

A firm is considering a proposed project with the following cash flows. Should this project be accepted based on the combination approach to the modified internal rate of return if both the discount rate and the reinvestment rate are 16 percent? Why or why not?<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

year                                 cashflows

0                                               -375,000

1                                               104,500

2                                              - 35,600

3                                                244,700

4                                                271,000

Explanation / Answer

NPV of the project = -375,000 +104,500/1.16 - 35,600/1.16^2 + 244,700/1.16^3 + 271,000/1.16^4 =-$4930.57

Since the NPV is negative, this project should not be accepted

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