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Alcan, Inc. is considering a project that has an initial outlay or cost of $220,000. The...

Alcan, Inc. is considering a project that has an initial outlay or cost of $220,000. The respective future cash inflows from its four-year project for years 1 through 4 are: $50,000, $60,000, $70,000, and $80,000, respectively. Alcan uses the internal rate of return method to evaluate projects. Will Alcan accept the project if its hurdle rate is 12%?

Alcan will not accept this project because its IRR is about 7.63%.

Alcan will not accept this project because its IRR is about 4.66%.

Alcan will not accept this project because its IRR is about 9.74%.

Alcan will not accept this project because its IRR is about 6.50%.

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Answer #1

Answer: The correct option is "Alcan will not accept this project because its IRR is about 6.50%".
We can calculate the internal rate of return (IRR) in excel using the cash flows given in he question. As the initial outlay or cost is a cash outflow, we have taken it as negative in excel.
Given that the hurdle rate is 12%, a project is accepted if the IRR is greater than the hurdle rate.


We get the value of IRR=6.50%
Here, the project should not be accepted as the IRR is less than hurdle rate.

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