A firm evaluates all of its projects by applying the IRR rule. The current propo

Question

A firm evaluates all of its projects by applying the IRR rule. The current proposed project has cash flows of -$27,048, $16,850, $15,700, and $4,300 for years 0 to 3, respectively. The required return is 19 percent. What is the project IRR? Should the project be accepted or rejected?

21.08 percent; reject

21.08 percent; accept

18.30 percent; accept

16.05 percent; reject

16.05 percent; accept

Explanation / Answer

Period Cash Flow PVF @21.08% PVCF 0 -27048 1                                                -27,048 1 16850 0.825900231                                                 13,916 2 15700 0.682111192                                                 10,709 3 4300 0.563355791                                                    2,422 NPV==>                                                          -0 The IRR = 21.08% since NPV is 0 If required rate is 19% then the project needs to be accepted as it results in higher return by investing.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.