Please assist! I am stuck Initial investment $120,000 Year/Cash inflows 1 $35,00

Question

Please assist! I am stuck

Initial investment $120,000

Year/Cash inflows

1 $35,000

2 $20,000

3 $25,000

4 $35,000

5 $40,000

Internal rate of return For the project shown in the following table, calculate the internal rate o . Then indicate, for the pro ect, the return maximum cost of capital that the firm could have and still find the IRR acceptable. The project's IRR is D6. (Round to two decimal places.) The maximum cost of capital that the firm could have and still find the IRR acceptable is % Round to two decimal places.

Explanation / Answer

NPV is calculated by discounting the cashflows

PV = C/(1+r)^n

C - Cashflow

r - Discount rate

n - years to the cashflow

IRR is the rate at which NPV = 0

NPV = -120000 + 35000/(1+IRR)^1 + 20000/(1+IRR)^2 + 25000/(1+IRR)^3 + 35000/(1+IRR)^4 + 40000/(1+IRR)^5 = 0

By trail and error, IRR = 8.71%

The maximum cost of capital for project acceptability would be 8.71%

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