A firm evaluates all of its projects by applying the IRR rule. Year Cash Flow 0

Question

A firm evaluates all of its projects by applying the IRR rule. Year Cash Flow 0 $ 145,000 1 71,000 2 68,000 3 52,000 -------------------------------------------------------------------------------- Requirement 1: Calculate the IRR. (Do not include the percent sign (%). Enter rounded answer as directed, but do not use the rounded numbers in intermediate calculations. Round your answer to 2 decimal places (e.g., 32.16).) Internal rate of return % Requirement 2: If the required return is 13 percent, should the firm accept the project? (Click to select)NoYes

Explanation / Answer

Requirement 1: 145000= (71000/r)+(68000/r^2)+(52000/r^3) r= 16.025% Requirement 2: NPV of the project -145000+ (71000/1.13)+(68000/1.13^2)+(52000/1.13^3)= $7124.44 Since the NPV of the project is positive, we will accept the project.

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