Homework SourseYour company has a project available with the following cash
Your company has a project available with the following cash flows:
If the required return is 15 percent, should the project be accepted based on the IRR?
No, because the IRR is 18.29 percent.
No, because the IRR is 16.88 percent.
Yes, because the IRR is 18.29 percent.
Yes, because the IRR is 16.88 percent.
Yes, because the IRR is 17.58 percent.
| Year | Cash Flow | |
| 0 | ?$80,500 | |
| 1 | 21,800 | |
| 2 | 25,600 | |
| 3 | 31,400 | |
| 4 | 26,300 | |
| 5 | 20,400 | |
Solution
Let irr be x%
At irr,present value of inflows=present value of outflows.
80500=21800/1.0x+25600/1.0x^2+31400/1.0x^3+26300/1.0x^4+20400/1.0x^5
Hence x=irr=16.88%(Approx).
Hence since irr is greater than the required return;project must be accepted.(option D).
