Question

A project has the following expected cash flows:

Year 0	Year 1	Year 2	Year 3
($1,480)	$640	$250	$300

Assume the risk-adjusted discount rate (k)(k) is 7.8%. Based on the IRR rule, should you accept or reject this project? Use Excel or a financial calculator.

1. Cannot be determined.
2. No, the project should be rejected.
3. Yes, the project should be accepted.

Answer 1

Internal rate of return is calculated using a financial calculator by inputting the below:

• Press the CF button.
• CF0= -$480. It is entered with a negative sign since it is a cash outflow.
• Cash flow for each year should be entered.
• Press Enter and down arrow after inputting each cash flow.
• After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.

The IRR of the project is -11.66%.

Therefore, the project should be rejected since it has a negative internal rate of return.

Hence, the answer is option b.

In case of any query, kindly comment on the solution.