Question

Given the following end of year cash flows (CF) estimate the internal rate of return (IRR)...

Given the following end of year cash flows (CF) estimate the internal rate of return (IRR) of this project. If the project’s cost of capital is 10%, would you undertake this project?

Timeline 0 1 2 3 4 CF 0 700 700 700 -3,000

Group of answer choices

No; IRR = 18.93%

Yes; IRR = 18.93%

No; IRR = 7.50%

Yes, IRR is greater than the cost of capital

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Homework Answers

Answer #1

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

  • Press the CF button.
  • CF0= $0.
  • 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 the project is 18.93%.

Since the internal rate of return is higher than the cost of capital, I would undertake the project.

In case of any further queries, kindly comment on the solution.

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