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Compute the IRR static for Project E. The appropriate cost of capital is 9 percent. (Do not round intermediate calculations a

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Answer #1

1)

RR is the rate of return that makes initial investment equal to present value of cash inflows

2900 = 910 / (1 + R)1 + 900 / (1 + R)2 + 800 / (1 + R)3 + 580 / (1 + R)4 + 380 / (1 + R)5

Using trial and error method, i.e.,after trying various values for R, lets try R as 8.51%

2900 = 910 / (1 + 0.0851)1 + 900 / (1 + 0.0851)2 + 800 / (1 + 0.0851)3 + 580 / (1 + 0.0851)4 + 380 / (1 + 0.0851)5

2900 = 2900

Therefore, IRR is 8.51%

2)

Project should be rejected as IRR is less than cost of capital.

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