Starr, Co. is considering a five-year project that has an initial after-tax outl
ID: 2707735 • Letter: S
Question
Starr, Co. is considering a five-year project that has an initial after-tax outlay of $250,000. The respective future cash inflows from its project for years 1, 2, 3, 4 and 5 are: $5,000, $5,000, $12,000, $43,000 and $51,000. Starr uses the internal rate of return method to evaluate projects. What is Starr's IRR? AnswerThe IRR is about 11.16%.
The IRR is about 26.16%.
The IRR is over 26.50%.
The IRR is less than 3.25%. Starr, Co. is considering a five-year project that has an initial after-tax outlay of $250,000. The respective future cash inflows from its project for years 1, 2, 3, 4 and 5 are: $5,000, $5,000, $12,000, $43,000 and $51,000. Starr uses the internal rate of return method to evaluate projects. What is Starr's IRR? Starr, Co. is considering a five-year project that has an initial after-tax outlay of $250,000. The respective future cash inflows from its project for years 1, 2, 3, 4 and 5 are: $5,000, $5,000, $12,000, $43,000 and $51,000. Starr uses the internal rate of return method to evaluate projects. What is Starr's IRR? The IRR is about 11.16%. The IRR is about 26.16%. The IRR is over 26.50%. The IRR is less than 3.25%.
The IRR is about 11.16%.
The IRR is about 26.16%.
The IRR is over 26.50%.
The IRR is less than 3.25%.
Explanation / Answer
Hi,
Please find the answer as follows:
To calculate IRR, you need to put the value of NPV as 0 and solve for r as follows:
NPV = 0 = -250000 + 5000/(1+r)^1 + 5000/(1+r)^2 + 12000/(1+r)^3 + 43000/(1+r)^4 + 51000/(1+r)^5
Solving for r, we get IRR as: -16.67%
Option D (The IRR is less than 3.25%) is correct.
Thanks.
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