Question

Calculating IRR. A firm evaluates all its projects by applying the IRR rule. Year Cash flow...

Calculating IRR. A firm evaluates all its projects by applying the IRR rule.

Year

Cash flow

0

-70000

1

41000

2

20000

3

30000

1. The IRR for the following project is ______%.

2. Should they accept the project if the required return is 14%? (yes or no)?

3. Usiing a finnancial calculator please show and explain work.

Business   Finance   
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Homework Answers

Answer #1

IRR = rate at which PV of Cash Inflows are equal to PV of Cash outflows

IRR = Rate at which least +ve NPV + [ NPV at that rate / Change In NPV due to inc in int rate by 1%] * 1%

= 15% + [ 500.53 / 1072.72 ] * 1%

= 15% + 0.47%

= 15.47%

2) Select the project if IRR> req ret

IRR - 15.47%

req ret - 14%

Select the Project.

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