Question

Vital Silence, Inc., has a project with the following cash flows:     Year Cash Flow 0...

Vital Silence, Inc., has a project with the following cash flows:

   

Year Cash Flow
0 –$ 27,400
1 11,400
2 14,400
3 10,400

  

The required return is 16 percent. What is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

  IRR %

Should the firm accept the project?

  • Accept

  • Reject

0 0
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Answer #1

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

27,400=11,400/1.0x+14,400/1.0x^2+10,400/1.0x^3

Hence x=irr=15.53%(Approx).

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

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