suppose your firm is considering FINANCE WK.9 CH 12 Est Cash Flows on Projects,

Question

suppose your firm is considering FINANCE WK.9 CH 12 Est Cash Flows on Projects, 13 Weighing NPV& Other Copital Budgeting Criteria velue 4.00 points Suppose your firm is considering investing in a projecd with the cash flows shown below, that the required rate of returm on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3 5 and 4.5 years, respectively Time Cash flow -$6,800 $1,140 $2,340 $1,540 $1,540 $1,340 $1,140 Use the IRR decision rule to evaluate this project. (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.) Should it be accepted or rejected? O Rejected O Accepted Hints References eBook & Resources Hint 1 Hint 2 Hint Hint s O Type here to search 0

Explanation / Answer

IRR is the rate at which NPV=0
=>-6800+1140/(1+IRR)+2340/(1+IRR)^2+1540/(1+IRR)^3+1540/(1+IRR)^4+1340/(1+IRR)^5+1140/(1+IRR)^6=0
=>IRR=9.24%

As IRR is more than the required return of 8%, the project should be accepted

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