Solution :
a. The IRR of the project is = 38.8502 %
= 38.85 % ( when rounded off to two decimal places )
b. As per the IRR Rule,
a. In case the IRR of the project is greater than its discount rate, the project should be accepted.
b. In case the IRR of the project is lesser than its discount rate, the project should not be accepted.
Since, the IRR of the project at 38.85 %, is greater than its discount rate at 7.5 % , the project should not be accepted.
The NPV is $ 4.92 million, which is positive so the NPV rule says to accept the project.
The IRR Rule says that the IRR of the project at 38.85 %, is greater than its discount rate at 7.5 %, hence the project should not be accepted.
The IRR rule does not agree with the NPV Rule, because the IRR rule says that the project should not be accepted.
Please find the attached screenshot of the excel sheet containing the detailed calculation for the IRR.
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