Question

The cash flows for a project are: $100 today, $100 in 1 year, $100 in 2 years, and -$400 in 3 years. (7 points) a. Calculate the IRR for the project. b. If the cost of capital is 10%, will you accept this project? Explain concisely.

Please show all work

Answer #1

Internal rate of return can be calculated using a financial calculator by inputting the below:

- Press the CF button.
- CF0= -$100.
- Cash flow for each of the years should be entered.
- Press Enter and down arrow after inputting each cash flow.
- After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of the project is
**15.09%.**

The project should be
**accepted** since the internal rate of return
of the project is higher than the cost of capital.

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A
B
1
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2
0
-3,430
3
1
974
4
2
1,281
5
3
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Year 2
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90
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1
2
3
4
5
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-5
-10
0
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