Question

# A firm evaluates all of its projects by applying the IRR rule. A project under consideration...

 A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows:

 Year Cash Flow 0 –\$ 28,700 1 12,700 2 15,700 3 11,700

 If the required return is 15 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

 Should the firm accept the project? Yes No

 Project IRR is the rate at which NPV =0 0 IRR 19.00% Year 0 1 2 3 Cash flow stream -28700.000 12700.000 15700.000 11700.000 Discounting factor 1.000 1.190 1.416 1.685 Discounted cash flows project -28700.000 10671.867 11085.953 6942.181 NPV = Sum of discounted cash flows NPV Project = -1.33123E-07 Where Discounting factor = (1 + discount rate)^(Corresponding period in years) Discounted Cashflow= Cash flow stream/discounting factor IRR= 19.00%

Yes, required rate of return is less than IRR