Answer:
The project will not be approved
Explanation:
Internal rate of return is the discount rate that equates the after-tax cash flows from an investment to the amount invested
IRR can be calculated with a financial calculator
Cash flow in year 0 = $-58,500
Cash flow in year 1 = $32,400
Cash flow in year 2 = $38,500
IRR = 13,41%
profitability index = 1 + (NPV / Initial investment)
Net present value is the present value of after-tax cash flows from an investment less the amount invested.
NPV can be calculated using a financial calculator
Cash flow in year 0 = $-58,500
Cash flow in year 1 = $32,400
Cash flow in year 2 = $38,500
I = 10%
NPV = $2,772.72
PI = 1 + $2,772.72 / $58,500 = 1.04
The project will not be approved because the PI is less than the amount of return the boss wants even though the IRR is less than the discount rate
To find the NPV using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.
3. Press compute
To find the IRR using a financial calculator:
1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.
2. After inputting all the cash flows, press the IRR button and then press the compute button.
