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.