Question

Little Tots Gym has a required rate of return of 13%. The gym is considering the purchase of $12,500 of new equipment. The internal rate of return on the project has been calculated to be 11%. This project:________

Answer 1

Answer:

This project is good and be should be accepted for implementation.

Explanation:

The IRR is the discount rate that equates the present value of cash inflows to that of cash outflows. At the IRR, the Net Present Value (NPV) of a project is equal to zero  

If the IRR greater than the required rate of return , we accept the project for implementation  

If the IRR is less than that the required rate , we reject the project for implementation  

For  Little Tots Gym, the IRR of the project (13%) is higher than the required rate of return of 11%, hence the project is good and be should be accepted for implementation