Consider a project with the following cash flows and a firm with a 15% cost of capital.

Question:

Consider a project with the following cash flows and a firm with a 15% cost of capital.
YearCash Flow

0.............−$20,000

1.............. 50,000

2................. −10,000

a. What are the two IRRs associated with this cash flow stream?

b. If the firm’s cost of capital falls between the two IRR values calculated in part (a), should it accept or reject the project?

Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...