Question

The company evaluates all projects by applying the IRR Rule. If the appropriate interest rate is 9%, should the company accept this project?

Answer 1

Answer: The project should be accepted.

Explanation:

The Internal Rate of Revenue is used to evaluate projects before they are accepted. It is a rate that equates the Net Present Value of cashflows to zero.

If the IRR is higher than the Required return then the Project will be accepted because it means that NPV will be higher than zero. The reverse is true.

Given the cashflows in the question, the IRR is;

= 18.8% according to Excel.

With the IRR higher than the required return of 8%, the project should be accepted.