Suppose your firm is considering investing in a project with the cash flows show

Question

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively. Time: 0 1 2 3 4 5 Cash flow –$240,000 $66,300 $84,500 $141,500 $122,500 $81,700 Use the IRR decision rule to evaluate this project. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively. Time: 0 1 2 3 4 5 Cash flow –$240,000 $66,300 $84,500 $141,500 $122,500 $81,700 Use the IRR decision rule to evaluate this project. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 11 percent, and that the maximum allowable payback and discounted payback statistics for your company are 3.0 and 3.5 years, respectively. Time: 0 1 2 3 4 5 Cash flow –$240,000 $66,300 $84,500 $141,500 $122,500 $81,700 Use the IRR decision rule to evaluate this project. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Explanation / Answer

Let irr be x%
At irr,present value of inflows=present value of outflows.

240,000=66300/1.0x+84500/1.0x^2+141500/1.0x^3+122500/1.0x^4+81700/1.0x^5

Hence x=IRR=28.05%(Approx)

Hence since IRR is greater than the required return;the project should be accepted.

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