Question

Internal rate of return   For the project shown in the following​ table, calculate the internal rate...

Internal rate of return   For the project shown in the following​ table, calculate the internal rate of return

​(IRR). Then​ indicate, for the​ project, the maximum cost of capital that the firm could have and still find the IRR acceptable.

Initial investment   \$160,000
Year (t)   Cash inflows
1   \$35,000
2   \$25,000
3   \$45,000
4   \$45,000
5   \$45,000

The​ project's IRR is?

The maximum cost of capital that the firm could have and still find the IRR acceptable is?

Cash Flows:
Year 0 = -\$160,000
Year 1 = \$35,000
Year 2 = \$25,000
Year 3 = \$45,000
Year 4 = \$45,000
Year 5 = \$45,000

Let IRR be i%

NPV = -\$160,000 + \$35,000/(1+i) + \$25,000/(1+i)^2 + \$45,000/(1+i)^3 + \$45,000/(1+i)^4 + \$45,000/(1+i)^5
0 = -\$160,000 + \$35,000/(1+i) + \$25,000/(1+i)^2 + \$45,000/(1+i)^3 + \$45,000/(1+i)^4 + \$45,000/(1+i)^5

Using financial calculator, i = 6.50%

The project’s IRR is 6.50%
The maximum cost of capital that the firm could have and still find the IRR acceptable is 6.50%

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