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

Homework Answers

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

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