Question

A firm evaluates all of its projects by applying the IRR rule.
  

Year	Cash Flow
0	–$	149,000
1		67,000
2		72,000
3		56,000

What is the project's IRR? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
  
Internal rate of return             %
  
If the required return is 16 percent, should the firm accept the project?

Answer 1

IRR is the rate at which PV of Cash Inflows are equal to PV of Cash Outflows

IRR = Rate at which least +ve NPV + [ NOv at that rate / change in NPV due to 1 % in rate ] * 1%

= 15% + [ 524.12 / 2380.94 ] * 1%

= 15% + 0.22%

= 15.22%

iF iIRR required is 16%, reject the project as it is not giving that IRR