Question

Suppose your firm is considering investing in a project with the cash flows shown as follows, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistic for the project are three and three and a half years, respectively. .

Time                          0                               1                                2                                         3                              4                                            5

Cash Flow             -100,000                   30,000                       45,000                                 55,000                     30,000                                  10,000

Use the IRR decision rule to evaluate this project; should it be accepted or rejected and why?

Answer 1