Question

Suppose your firm is considering Investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively. Cantelow. -57,100 $1,110 2,310 31,510 1.$10 21 310 1110 Use the IRR decision rule to evaluate this project. (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.) IRR Should it be accepted or rejected? rejected accepted

Answer 1

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

7700=1110/1.0x+2310/1.0x^2+1510/1.0x^3+1510/1.0x^4+1310/1.0x^5+1110/1.0x^6

Hence x=irr=4.38%(Approx)

Hence since irr is less than required return;project must be rejected,.