Can someone please help me with this question. Please show your work and explain how you...
Can someone please help me with this question. Please show your work and explain how you got your answer, thanks!
Kris Reeves is evaluating projects using the IRR rule and a required return of 12%. Should she accept the following project given estimated cash flows of $75,000 for the first two years and $55,000 for the next two years? The initial investment is $165,000.
- Reject, IRR of 22.69%
- Accept, IRR of 20.69%
- Indifferent, IRR same as required return
- Accept, IRR of 22.69%
- None of the above
Homework Answers
Let irr be x%
At irr,present value of inflows=present value of outflows.
165,000=75000/1.0x+75000/1.0x^2+55,000/1.0x^3+55,000/1.0x^4
Hence x=irr=22.69%(Approx)
Hence since irr is greater than required return;project must be accepted.
Hence the correct option is:
Accept, IRR of 22.69%
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