Question

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

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.

a. Tindall Industries has the opportunity to develop a new plant
based hotdog, it estimates that the project’s cost of capital is
10%. The project’s expected cash flows (in $ millions) at the end
of year are given below. What is the NPV of this project? Enter
your answer in $ millions without the “$”; round your final answer
to two decimals.
Timeline
0
1
2
3
4
5
6
7
CF
-3,000
200
250
300
450
700
1,000
1,000...

Internal rate of return (IRR)
The internal rate of return (IRR) refers to the compound annual
rate of return that a project generates based on its up-front cost
and subsequent cash flows. Consider this case:
Falcon Freight is evaluating a proposed capital budgeting
project (project Delta) that will require an initial investment of
$1,500,000.
Falcon Freight has been basing capital budgeting decisions on a
project’s NPV; however, its new CFO wants to start using the IRR
method for capital budgeting...

2. Internal rate of return (IRR)
The internal rate of return (IRR) refers to the compound annual
rate of return that a project generates based on its up-front cost
and subsequent cash flows. Consider this case of Blue Llama Mining
Company:
Blue Llama Mining Company is evaluating a proposed capital
budgeting project (project Delta) that will require an initial
investment of $1,600,000.
Blue Llama Mining Company has been basing capital budgeting
decisions on a project’s NPV; however, its new CFO...

Modified internal rate of return (MIRR)
The IRR evaluation method assumes that cash flows from the
project are reinvested at the same rate equal to the IRR. However,
in reality the reinvested cash flows may not necessarily generate a
return equal to the IRR. Thus, the modified IRR approach makes a
more reasonable assumption other than the project’s IRR.
Consider the following situation:
Fuzzy Button Clothing Company is analyzing a project that
requires an initial investment of $500,000. The project’s...

4. Modified internal rate of return (MIRR)
The IRR evaluation method assumes that cash flows from the
project are reinvested at the same rate equal to the IRR. However,
in reality the reinvested cash flows may not necessarily generate a
return equal to the IRR. Thus, the modified IRR approach makes a
more reasonable assumption other than the project’s IRR.
Consider the following situation:
Green Caterpillar Garden Supplies Inc. is analyzing a project
that requires an initial investment of $2,500,000....

4. Modified internal rate of return (MIRR)
The IRR evaluation method assumes that cash flows from the
project are reinvested at the same rate equal to the IRR. However,
in reality the reinvested cash flows may not necessarily generate a
return equal to the IRR. Thus, the modified IRR approach makes a
more reasonable assumption other than the project’s IRR.
Consider the following situation:
Green Caterpillar Garden Supplies Inc. is analyzing a project
that requires an initial investment of $3,225,000....

4. Internal rate of return (IRR) The internal rate of return
(IRR) refers to the compound annual rate of return that a project
generates based on its up-front cost and subsequent cash flows.
Consider the case of Blue Llama Mining Company: Blue Llama Mining
Company is evaluating a proposed capital budgeting project (project
Sigma) that will require an initial investment of $800,000. The
company has been basing capital budgeting decisions on a project’s
NPV; however, its new CFO wants to...

4. Modified internal rate of return (MIRR)
The IRR evaluation method assumes that cash flows from the
project are reinvested at the same rate equal to the IRR. However,
in reality the reinvested cash flows may not necessarily generate a
return equal to the IRR. Thus, the modified IRR approach makes a
more reasonable assumption other than the project’s IRR.
Consider the following situation:
Cold Goose Metal Works Inc. is analyzing a project that requires
an initial investment of $500,000....

The internal rate of return (IRR) refers to the compound annual
rate of return that a project generates based on its up-front cost
and subsequent cash flows. Consider this case:
Blue Llama Mining Company is evaluating a proposed capital
budgeting project (project Delta) that will require an initial
investment of $1,600,000.
Blue Llama Mining Company has been basing capital budgeting
decisions on a project’s NPV; however, its new CFO wants to start
using the IRR method for capital budgeting decisions....

For the project shown in the following table,
calculate the internal rate of return (IRR). Then indicate,
for the project, the maximum cost of capital that the firm could
have and still find the IRR acceptable.
Initial investment
(CF 0CF0)
$80,000
Year
(t)
Cash inflows
(CF Subscript tCFt)
1
$25,000
2
$45,000
3
$30,000
4
$30,000
5
$15,000

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