Question

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

Answer 1

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