Suppose you are offered a project with the following cash flows: a. What is the IRR of
Question:
Suppose you are offered a project with the following cash flows:
a. What is the IRR of this project?
b. If the appropriate discount rate is 10 percent, should you accept this project?
c. If the appropriate discount rate is 20 percent, should you accept this project?
d. What is the NPV of the project if the appropriate discount rate is 10 percent? 20 percent?
e. Are the decisions under the NPV rule in part (d) consistent with those of the IRR rule?
Year 0 1 2 3 4 Cash Flows $9,800 -4,300 -3,300 -2,500 -2,300
Step by Step Answer:
Answer and thorough explanation a What is the IRR of this project The IRR is the discount rate that ...View the full answer
Corporate Finance
ISBN: 9781260772388
13th Edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
Related Video
The internal rate of return, or IRR, is a metric used to measure the profitability of an investment. It is the discount rate that makes the net present value of an investment equal to zero. To calculate the IRR, we need to know the investment\'s cash flows. These are the inflows and outflows of cash that will result from the investment. For example, an investment in a property might have cash outflows for the purchase price, closing costs, and any renovations, and cash inflows from rent and eventual sale of the property. The IRR is the discount rate at which the NPV of the investment is equal to zero. There are many ways to calculate IRR, from simple spreadsheet functions to more complex financial modeling software. It\'s worth noting that IRR can be a bit tricky when it comes to projects that don\'t have a consistent cash flow over time. These types of investments are known as \"irregular cash flow\" and the IRR might be misleading or not suitable to calculate. There are other metrics to evaluate these investments such as Modified Internal Rate of Return (MIRR) which is a variation of IRR and is used to get more accurate results.
Students also viewed these Business questions
-
Suppose you are offered a project with the following payments. a. What is the IRR of this offer? b. If the appropriate discount rate is 10 percent, should you accept this offer? c. If the appropriate...
-
Suppose you are offered a project with the following payments. YEAR...............................................CASH FLOWS ($) 0......................................................$14,700...
-
Suppose you are offered a project with the following payments. Year ..........Cash Flows 0 ....................$ 15,900 1 .......................5,900 2 .......................5,700 3...
-
Misty Cumbie worked as a waitress at the Vita Caf in Portland, Oregon. The caf was owned and operated by Woody Woo, Inc. Woody Woo paid its servers an hourly wage that was higher than the states...
-
Wisconsin state Senator Jesse P. Rude has charged that state employees in Madison are often too stoned to work. He thinks as many as 10 percent of all state workers in Madison are frequent users of...
-
On January 1 , 2 0 1 9 , Sunland Corporation acquired equipment at a cost of $ 7 8 6 0 0 0 . Sunland adopted the sum - of - the - years - digits method of depreciation for this equipment and had been...
-
Why do companies not replace all of their legacy systems ?
-
Donna gives Peter a check for $2,500 in return for a laptop computer. The check is dated December 2. Peter transfers the check for value to Howard on December 14, and Howard deposits it in his bank...
-
On January 1, 2015, YUWI Co. purchased 10% P700,000 bonds at 95 when the prevailing market interest rate is at 12%. The bonds mature after 5 years and pay interest beginning January 1, 2016....
-
A college consists of number of employees working in different departments. In this context, create two tables employee and department. Employee consists of columns empno, empname, basic, hra, da,...
-
Symons Sausage Corporation is trying to choose between the following two mutually exclusive design projects: a. If the required return is 10 percent and the company applies the profitability index...
-
Vince plans to open a self-serve grooming center in a storefront. The grooming equipment will cost $365,000, to be paid immediately. Vince expects aftertax cash inflows of $79,000 annually for 7...
-
A novel method to cool high-powered microelectronic chips and chip modules is to etch the liquid coolant flow channels in silicon (Si) substrate itself [912]. A typical such arrangement with channels...
-
Consider the following network. Don't forget to explain rationales behind your answer. 2 3 5 8 (a) What is the diameter of the network? (b) What is the node connectivity between node 3 and node 9?...
-
SJM Group contacts one of their largest customers, Soren Corp, because they have not yet made payment on their account (Soren Corp had previously received advertising services from SJM Group on...
-
2. Compute the magnitude of the tangent vector and the unit tangent vector at t = 1 for each of the following vector functions. Provide a sketch of the curve from t=0 to t = 1. (a) r(t) = (t,...
-
Tiger Company Limited's total assets are valued at $3,000,000 and currently 20% is financed by debt while 80% is from equity. The company hired a financial consultant to determine the optimal debt to...
-
Pass the journal entries of the given transactions Event 1 3-Jan 2 Date 3 Description of Event Employees are paid monthly on the first business day of the month for work done in the previous month....
-
Explain why a protein tyrosine phosphatase would include an SH2 domain in addition to its phosphatase domain.
-
The population of Detroit, Michigan, decreased from 1,027,974 in 1990 to 688,701 in 2013 (Source: U.S. Census Bureau). Find the average rate of change in the population of Detroit, Michigan, over the...
-
Can our goal of maximizing the value of the stock conflict with other goals, such as avoiding unethical or illegal behavior? In particular, do you think subjects like customer and employee safety,...
-
Would our goal of maximizing the value of the stock be different if we were thinking about financial management in a foreign country? Why or why not?
-
Would our goal of maximizing the value of the stock be different if we were thinking about financial management in a foreign country? Why or why not?
-
Calculate the energy stored for the series-parallel combination shown in figure if C1 = 2uF, C = 1.6F, C3 = 4.3F, C = 6F, and C5 = 8F and charged to a potential difference of 3200- V. (11pnts) C3 HH...
-
Comprehensively explains the financial cost of a total reward plan that incudes improvements in the health and wellness plan, 401(K) plan and a sick bank to both direct and indirect compensation ?
-
A company that uses job order costing purchases $86,000 in raw materials for cash. It then uses $12,000 of raw materials as indirect materials and uses $67,700 of raw materials as direct materials....
Study smarter with the SolutionInn App