Question

Your company has a project available with the following cash flows:

Year. Cash Flow

0. $80,200

1 21,950

2. 25,900

3. 31,700

4. 26,450

5. 20,700

If the required return is 16 percent, should the project be accepted based on the IRR?

A. No, because the IRR is 17.75 Percent

B. Yes, because the IRR is 18.90 Percent

C. No, because the IRR is 18.90 Percent

D. Yes, because the IRR is 17.45 Percent

E. Yes, because the IRR is 18.17 Percent

Answer 1

Cash Flows:
Year 0 = -$80,200
Year 1 = $21,950
Year 2 = $25,900
Year 3 = $31,700
Year 4 = $26,450
Year 5 = $20,700

Let IRR be i%

NPV = -$80,200 + $21,950/(1+i) + $25,900/(1+i)^2 + $31,700/(1+i)^3 + $26,450/(1+i)^4 + $20,700/(1+i)^5
0 = -$80,200 + $21,950/(1+i) + $25,900/(1+i)^2 + $31,700/(1+i)^3 + $26,450/(1+i)^4 + $20,700/(1+i)^5

Using financial calculator, i = 17.45%

IRR of the project = 17.45%

Yes, the project should be accepted because the IRR is 17.45%