Question

Your company has a project available with the following cash flows: Year Cash Flow -$81,400 21,350 24,700 30,500 25,850 19,500 If the required return is 14 percent, should the project be accepted based on the IRR? Multiple Choice Yes, because the IRR is 15.82 percent. O Yes, because the IRR is 16.46 percent. O No, because the IRR is 15.19 percent. O Yes, because the IRR is 15.19 percent. C) No, because the IRR is 16.46 percent.

Answer 1

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

81400=21350/1.0x+24700/1.0x^2+30500/1.0x^3+25850/1.0x^4+19500/1.0x^5

Hence x=irr=15.19%(Approx).

Hence since irr is greater than required return;project must be accepted.

Hence the correct option is:

Yes,because the IRR is 15.19 percent.