Question

A project has cash flows of +$400, –$300, and –$300 in consecutive years. The prevailing interest...

A project has cash flows of +$400, –$300, and –$300 in consecutive years. The prevailing interest rate is 5%. Calculate IRR and decide whether you should take this project.

Homework Answers

Answer #1
Project
IRR is the rate at which NPV =0
IRR 0.31871995
Year 0 1 2
Cash flow stream 400 -300 -300
Discounting factor 1 1.31872 1.739022
Discounted cash flows project 400 -227.493 -172.511
NPV = Sum of discounted cash flows
NPV Project = -0.004061083
Where
Discounting factor = (1 + discount rate)^(Corresponding period in years)
Discounted Cashflow= Cash flow stream/discounting factor
IRR= 31.87%
Reject project as IRR is more than discount rate of 5 %
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