Calculate IRR - Stone Sour, Inc., has a project with the following cash flows: The company evaluates all projects by applying the IRR rule. If the appropriate interest rate is 9 percent, should the company accept the project?
Year |
Cash Flows ($) |
0 |
-$20,000 |
1 |
8,500 |
2 |
10,200 |
3 |
6,200 |
Project | ||||
IRR is the rate at which NPV =0 | ||||
IRR | 12.41% | |||
Year | 0 | 1 | 2 | 3 |
Cash flow stream | -20000.000 | 8500.000 | 10200.000 | 6200.000 |
Discounting factor | 1.000 | 1.124 | 1.264 | 1.420 |
Discounted cash flows project | -20000.000 | 7561.872 | 8072.740 | 4365.388 |
NPV = Sum of discounted cash flows | ||||
NPV Project = | 0.000 | |||
Where | ||||
Discounting factor = | (1 + discount rate)^(Corresponding period in years) | |||
Discounted Cashflow= | Cash flow stream/discounting factor | |||
IRR= | 12.41% |
Accept project as IRR is greater than 9%
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