Question

Compute the IRR for Project F. The appropriate cost of capital is 11 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.) Project F Time: Cash flow:-$10,100 $3,850 $4,680 $2,020 $2,650 IRR % Should the project be accepted or rejected? rejected O accepted

Answer 1

Solution :

Project F :

The IRR of Project F = 12.99 %

As per the IRR Rule,

a. In case the IRR of the project is greater than its cost of capital, the project should be accepted.

b. In case the IRR of the project is lesser than its cost of capital, the project should not be accepted.

Since, the IRR of the project at 12.99 %, is greater than its cost of capital at 11 % , the project F should be accepted.

Project E :

The IRR Static of Project E = 24.28 %

As per the IRR Rule,

a. In case the IRR Static of the project is greater than its cost of capital, the project should be accepted.

b. In case the IRR Static of the project is lesser than its cost of capital, the project should not be accepted.

Since, the IRR Static of the project at 24.28 %, is greater than its cost of capital at 7 % , the project E should be accepted.

Please find the attached screenshot of the excel sheet containing the detailed calculation for the solution.

30.09.2019 - Microsoft Excel XES HOME A B FILE INSERT PAGE LAYOUT DATA FORMULAS D REVIEW E VIEW F G H Statement showing calculation of IRR of Project F Sl.No. Particulars Amount 1 Cash outflow Year 0 $ -10,100.00 2 Cash Inflow Year 1 3,850.00 3 Cash Inflow Year 2 4,680.00 4 Cash Inflow Year 3 2,020.00 5 Cash Inflow Year 4 2,650.00 6 IRR of Project F 12.99% IRR of a project is calculated using the formula =IRR(values,guess) In the given formula adding a guess rate is optional Also, the series of cash flows should have atleast one negative value and one positive value to calculate IRR The Formula for calculating IRR for Project F= IRR(D4:08) The IRR of Project F = 12.99 % As per the IRR Rule, a. In case the IRR of the project is greater than its cost of capital, the project should be accepted. b. In case the IRR of the project is lesser than its cost of capital, the project should not be accepted. Since, the IRR of the project at 12.99 %, is greater than its cost of capital at 11%, the project should be accepted.

30.09.2019 - Microsoft Excel XES FILE HOME INSERT PAGE LAYOUT FORMULAS DATA REVIEW VIEW А в K Statement showing calculation of IRR Static of Project E Sl.No. Particulars Amount 1 Cash outflow Year 0 $ - 1,100.00 2 Cash Inflow Year 1 $ 390.00 3 Cash Inflow Year 2 510.00 4 Cash Inflow Year 3 540.00 5 Cash Inflow Year 4 320.00 6 Cash Inflow Year 5 120.00 7 IRR Static of Project E 24.28% IRR Static of a project is calculated using the formula EIRR(values,guess) In the given formula adding a guess rate is optional Also, the series of cash flows should have atleast one negative value and one positive value to calculate IRR Static The Formula for calculating IRR Static for Project E = IRR(D4:D9) The IRR Static of Project E = 24.28 % As per the IRR Rule, a. In case the IRR Static of the project is greater than its cost of capital, the project should be accepted. b. In case the IRR Static of the project is lesser than its cost of capital, the project should not be accepted. Since, the IRR Static of the project at 24.28 %, is greater than its cost of capital at 7%, the project should be accepted.