Compute the IRR static for Project E The appropriate cost of

Compute the IRR static for Project E. The appropriate cost of capital is 7 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

    

    

  

Should the project be accepted or rejected?

Compute the IRR static for Project E. The appropriate cost of capital is 7 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Solution

a. IRR 18.85% b. Accepted Working: IRR is the rate at which Net Present Value is zero. Calculate NPV at 7% Time Cash flow Discount factor Present Value 0 $       -2,000      1.0000 $       -2,000 1 $            750      0.9346 $            701 2 $            780      0.8734 $            681 3 $            720      0.8163 $            588 4 $            500      0.7629 $            381 5 $            300      0.7130 $            214 Total $            565 Calculate NPV at 20% Time Cash flow Discount factor Present Value 0 $       -2,000      1.0000 $       -2,000 1 $            750      0.8333 $            625 2 $            780      0.6944 $            542 3 $            720      0.5787 $            417 4 $            500      0.4823 $            241 5 $            300      0.4019 $            121 Total $             -55 IRR = 7%+(20%-7%)*(565/(565+55)) = 18.85% Since IRR is more than cost of capital, project is to be Accepted.