Question

A project has cash flows of −$152,000, $60,800, $62,300, and $75,000 for Years 0 to 3, respectively. The required rate of return is 13 percent. Based on the internal rate of return of _____ percent, you should _____ the project.

Please give an exact answer.

Answer 1

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

152000=60800/1.0x+62300/1.0x^2+75000/1.0x^3

Hence x=irr=13.96%(Approx)

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

Based on the internal rate of return of 13.96 percent, you should accept the project.