Question

Simkins Renovations Inc. is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's IRR can be less than the WACC (and even negative), in which case it will be rejected. Year 0 1 2 3 4 Cash flows -$850 $300 $290 $280 $270
Choices: 17.48% 19.22% 14.44% 15.89% 13.13%

Answer 1

Answer:

The project's  IRR is 13.13%

Explanation:

The Internal Rate of Return is that return in which Net Present Value is zero .

The Net Present Value (NPV) is the value which show the difference between the initial investment and all years of cash flows of two projects. The cash flows should be discounted by applying discounted factor.

There are two scenarios for accepting or rejecting the project . If NPV is positive, than the project should be accepted otherwise not.

The Internal Rate of Return is calculated by using excel formula :

= IRR ( - year0 cash flows, all years cash flows).

The computation is shown in the attachment sheet.

Thus, the project's  IRR is 13.13%