Lawrence Corp. is considering the purchase of a new piece of equipment. When discounted at a...
Lawrence Corp. is considering the purchase of a new piece of equipment. When discounted at a hurdle rate of 12%, the project has a net present value of $24,600. When discounted at a hurdle rate of 15%, the project has a net present value of ($29,000). The internal rate of return of the project is:
answers:
zero.
greater than 15%.
between zero and 12%.
between 12% and 15%.
Homework Answers
The Internal Rate of Return (IRR) is the discount rate that makes the present values of cash inflow equal to the initial cost of the project. i.e Present Value of Inflows = Present Value of Outflows.or Net present Value is equal to zero.
At 12% NPV is $24600 and at 15$ NPV is ($29000), and we know that as the discount rate increases the present value of cash inflows will decrease, so the IRR rate should be between 12% to 15%.
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