Suppose your firm is considering investing in a project with the cash flows show

Question

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 7 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively.

  

  

Use the IRR decision rule to evaluate this project. (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.)

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 7 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively.

Explanation / Answer

IRR is greater than required rate of 7% so accept the project

IRR= 19.96% Year 0 1 2 3 4 5 6 Cash flow stream -5300 1190 2390 1590 1590 1390 1190 Discounting factor 1 1.19964 1.439145 1.726462 2.071139 2.484629 2.98067 Discounted cash flows project -5300 991.961 1660.708 920.9587 767.6935 559.4396 399.2391 NPV = Sum of discounted cash flows NPV XYZ = 5.05815E-05 Discounting factor = (1 + discount rate)^(CORRESPONDING PERIOD IN YEARS) Discounted Cashflow= Cash flow stream/discounting factor

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