The local homeless shelter received a large donation from a wealthy benefactor and asked you to review its decision-making process for the proposed investment choice. The shelter’s financial advisor suggested using the internal rate of return (IRR) to evaluate three different projects:

REQUIRED

● A hotel that offers rooms based on the renter’s ability to pay

● An apartment complex for elderly who receive rent subsidization from a federal agency

● A small cardboard box manufacturing company that will serve as a job training facility for homeless clients

A. In your own words, describe the advantages and disadvantages of IRR for this decision.

B. This not-for-profit organization uses an IRR hurdle rate of 15% for most projects. Is it a good idea for an organization to use the same hurdle rate for most projects? Why or why not?

C. List information that might help you develop a hurdle rate for each project.

D. Which alternative do you believe is most financially risky for the homeless shelter? Explain your thinking.