Question

Marielle Machinery Works forecasts the following cash flows on a project under consid- eration. It uses the internal rate of return rule to accept or reject projects. (LO8-2) a. What is the project’s IRR? b. Should this project be accepted if the required return is 12%?

Answer 1

Answer:

a. Project’s IRR is 18.28%

b. Project should be accepted and pursued because it IRR is higher than the required rate of return.

Explanation:

Cash flows are missing a similar question is attached and followoing answer is made accordingly.

Year                           0             1           2              3             NPV

Cash flows          -$10,000    $0     $7,500    $8,500

PV @ 10%            -$10,000    $0     $6,198     $6,386    =   $2,584

PV @5%               -$10,000    $0     $6,802     $7,342    =   $4,144

IRR = 0.05 + ( 4,144 / (4,144-2,584)) x (0.1-0.05) = 18.28%