Question

An investment has the following cash flows and a required return of 13 percent. Based on IRR, should this project be accepted? Why or why not? Year Cash Flow 0 -$42,000 1 15,300 2 28,400 3 7,500 A. Yes; The IRR exceeds the required return by about 1.53 percent. B. No; The IRR is less than the required return by about 1.53 percent. C. Yes; The IRR exceeds the required return by about 0.06 percent. D. No; The IRR exceeds the required return by about 0.06 percent.

Answer 1

Answer:

 B. No; The IRR is less than the required return by about 1.53 percent

Explanation:

The internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested.

The IRR can be calculated using a financial calculator:

Cash flow in year zero = -$42,000

Cash flow in year one = 15,300

Cash flow in year two = 28,400

Cash flow in year three = 7,500 

IRR = 11.47%

A project should be chosen if the IRR is greater than the required return

The IRR is less than the required return so the project should be rejected.

To find the IRR using a financial calacutor:

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.

I hope my answer helps you