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A manager is reviewing a project with an ini!al cost of $48,700 and cash inflows of...

A manager is reviewing a project with an ini!al cost of $48,700 and cash inflows of $12,800, $20,400, and $27,700 for Years 1 to 3, respectively. Should the project be accepted if it has been assigned a required return of 9.75%? Why or why not?

A) No, because the IRR is only 9.69%

B) Yes, because the IRR exceeds the required return by .88%

C) Yes, because the IRR is less than the required return by .56%

D) No, because the IRR exceeds the required return by .88%

E) Yes, because the IRR exceeds the required return by .56%

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Answer #1

Answer : Correct Option is (B) Yes, because the IRR exceeds the required return by .88%.

Calculation :

A project Become Acceptable if IRR of the project is more than its required rate of Return.

Below is the sheet showing calculation of IRR :

Therefore IRR 10.63% is more than Required Return by 0.88% (i.e 10.63% - 9.75%). Therefore the project should be accepted.

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