Question

CrossTown Builders is considering remodeling an old building it currently owns. Their investment analysis shows that the expected internal rate of return is not as high as the company would like. Look below at the proposed changes to their analysis and pick the one that would increase the internal rate of return for the project.

Multiple Choice

• Removing the amount of the salvage value.

• Making the amount of the final inflow of cash lower.

• Making the initial investment in fixed assets a higher amount.

• Keeping the total amount of cash inflows the same but having them generated in fewer years than originally planned.

• Lowering the required discount rate.

Answer 1

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Answer:

Option D

By having the cashflows in quicker time the IRR increases as the discounting time period decreases. Other options are incorrect as removing salvage value decreases IRR and lowering the cashflows and initial investments higher making IRR lower.

Changing diacount rate does not affect IRR

Keeping the total amount of cash inflows the same but having them generated in fewer years than originally planned.