what is the projects average accounting return AAR Calculati

what is the project\'s average accounting return (AAR)? Calculating IRR. A firm evaluates all of its projects by applying the IRR rule If the required return is 11 percent, should the firm accept the following project? 5 YearCash Flow 0 $168,500 86,000 91,000 53,000 2 6, Calculating NPV. For the cash flows in the previous problem, suppose the firm uses the NPV decision rule. At a required return of 9 percent, should the firm accept this project? What if the required return was 21 percent?

Solution

5.

Use IRR function in Excel and select the cash flows

IRR = 18.79%, so accept

6, At 9%

NPV = 27,917.69 accept since NPV is positive

At 21%

NPV = -5,354.28 so reject

Cash flows	Year
(168,500.00)	0
86,000.000	1
91,000.000	2
53,000.000	3