Question

Your company has a project available with the following cash flows:

Year Cash Flow

0: −$80,600

1: 21,750

2: 25,500

3: 31,300

4: 26,250

5: 20,300

If the required return is 15 percent, should the project be accepted based on the IRR?

Answer 1

Internal rate of return is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$80,600. It is entered with a negative sign since it is a cash outflow.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of project is 16.69%.

The project should be accepted since the internal rate of return is higher than the required return of 15%.

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