Question

Technology Corp. is considering a $238,160 investment in a new marketing campaign that it anticipates will provide annual cash flows of $52,000 for the next five years. The firm has a 6% cost of capital. What should the analysis indicate to the firm's managers?(a) IRR is 8%. Accept the project.
(b) IRR is 3%. Reject the project.
(c) IRR is 4%. Reject the project.
(d) IRR is 6%. Accept the project.

Answer 1

Answer:

B) IRR is 3%. Reject the project.

Explanation:

We can use an excel spreadsheet to calculate the internal rate of return (IRR) for this investment:

we can use the IRR function =IRR(values,[guess])

where:

• value 1 = -238160
• value 2 to 6 = 52000
• guess = optional, not required

=IRR(-238160,52000,52000,52000,52000,52000) = 3%