Question

Maxwell Feed & Seed is considering a project that has the following cash flow data. What is the project's TRR? Note that a project 's projected TRR can be less than the WACC (and even negative), in which case it will be rejected Year 0. 2 Cash flows $9, 500 $2,000 $2, 025 $2,050 $2,075 $2,100 ○ A. 2.82% O B. 2.08% 0 C. 3.10% O D. 2.31% O E. 2.57%

Answer 1

Cash Flows:
Year 0 = -$9,500
Year 1 = $2,000
Year 2 = $2,025
Year 3 = $2,050
Year 4 = $2,075
Year 5 = $2,100

Let IRR be i%

NPV = -$9,500 + $2,000/(1+i) + $2,025/(1+i)^2 + $2,050/(1+i)^3 + $2,075/(1+i)^4 + $2,100/(1+i)^5
0 = -$9,500 + $2,000/(1+i) + $2,025/(1+i)^2 + $2,050/(1+i)^3 + $2,075/(1+i)^4 + $2,100/(1+i)^5

Using financial calculator, i = 2.57%

So, IRR of the project is 2.57%