Question

An investment has the following cash flows. Should the project be accepted if it has been assigned a required return of 14 percent? why or why not? Financial calculator is appropriate here. Year Cash flows -$30,000 $8400 $13,900 $18,600 0 1 2 3 A. No, the IRR exceeds the required return by about 1.08 percent OB. No the IRR is less that the required return by about 0.97 percent C. Yes, the IRR exceeds the required return by about 1.08 percent D. Yes, the IRR is Less than the required return by about 0.97 percent E. None

Answer 1

Correct answer: c. Yes, the IRR exceeds the required return by about 1.08 percent

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

A B с D 1 2. 3 2 Year 0 4 1 Cash Flows $30,000.00 $8,400.00 $13,900.00 $18,600.00 5 2 3 6 Project's IRR 15.08% 7 8 9 10 11 12 13 14 Required return of Project 14.00% Excess IRR 1.08%

Cell reference -

A С 1 2. Year Cash Flows 3 0 4. -30000 8400 13900 18600 1 2 3 5 6 Project's IRR =IRR(C3:06) Required return of Project 0.14 7 8 9 10 11 12 13 14 Excess IRR =C8-C10

Hope it will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.