A firm is considering a project that requires an initial investment of $250,000. The life of...

 

Transcribed Image Text:

A firm is considering a project that requires an initial investment of $250,000. The life of this project is five years. Cash flows for each year are estimated as follows: Year 1 Year 2 Year 5 $120,000 $220,000 -$163,000 The cost of capital of this project is 7%. Calculate the internal rate of return of the project and make a decision. Year 3 $160,000 Year 4 -$90,000 Accept since the IRR is 7.12%, which is greater than the required rate. Accept since the IRR is 3.62%, which is less than the required rate. Reject since the IRR is 7.12%, which is greater than the required rate. Cannot be determined. Reject since the IRR is 3.62%, which is less than the required rate. A firm is considering a project that requires an initial investment of $250,000. The life of this project is five years. Cash flows for each year are estimated as follows: Year 1 Year 2 Year 5 $120,000 $220,000 -$163,000 The cost of capital of this project is 7%. Calculate the internal rate of return of the project and make a decision. Year 3 $160,000 Year 4 -$90,000 Accept since the IRR is 7.12%, which is greater than the required rate. Accept since the IRR is 3.62%, which is less than the required rate. Reject since the IRR is 7.12%, which is greater than the required rate. Cannot be determined. Reject since the IRR is 3.62%, which is less than the required rate.

Answer rating: 100% (QA)

IRR or internal rate of return is that rate which makes the net present value zero It is the rate a ... View the full answer