A project has cash flows of –$148,400, $42,500, $87,300, and $43,200 for Years 0 to 3,...

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A project has cash flows of –$148,400, $42,500, $87,300, and $43,200 for Years 0 to 3,...

A project has cash flows of –$148,400, $42,500, $87,300, and $43,200 for Years 0 to 3, respectively. The required rate of return is 11 percent. Based on the internal rate of return of ________ percent for this project, you should ________ the project.

A.) 7.91; reject

B.) 8.03; reject

C.) 6.67; reject

D.) 8.03; accept

E.) 7.91; accept

business finance

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Answer 1

Answer #1

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

148,400=42500/1.0x+87300/1.0x^2+43200/1.0x^3

Hence x=irr=8.03%(Approx)

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

Hence the correct option is:

8.03;reject.

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Answer 2

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A project has cash flows of –$148,400, $42,500, $87,300, and $43,200 for Years 0 to 3,...

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A project has cash flows of –$148,400, $42,500, $87,300, and $43,200 for Years 0 to 3,...

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A project has cash flows of -$148,400, $42,500, $82,300, and $46,200 for Years 0 to 3,...

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A project has cash flows of –$148,400, $42,500, $87,300, and $43,200 for Years 0 to 3,...