On January 1, 2019, Woodstock, Inc. purchased a machine costing $30,900. Woodstock also paid $1,700 for transportation and insta
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Answer:
The answer and procedures of the exercise are attached in the following archives.
Explanation:
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The IRR is the project’s expected rate of return, assuming that intermediate cash flows also earn the IRR. If this return exceeds the cost of the capital invested in the project, the excess value goes to the firm’s shareholders. Therefore, independent projects whose IRR is greater than the WACC should be accepted.
Therefore in this case WACC of the project is 7% and IRR of the project is 1.86% which is less than WACC of the project. Hence the firm reject the project delta.
Calculation of IRR is based on Cash inflows and outflows for the number of years so that increase in cost of capital will not affect IRR.
