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Peanut Co. is planning on investing in a new 2-year project, Project Jelly. Project Jelly is...

Peanut Co. is planning on investing in a new 2-year project, Project Jelly. Project Jelly is expected to produce cash flows of $100,000 and $120,000 in each of the 2 years, respectively. Peanut requires an internal rate of return of 15%. What is the maximum amount that Peanut should invest immediately in Project Jelly?

         Present Value of 1                       Future Value of 1

         Period               15%                   Period              15%

             1                   .870                        1                  1.150

             2                   .756                        2                  1.323

a) $191.400

b) $177,720

c) $220,000

d) $273,760

why the answer is B? THX

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Answer #1

At irr,present value of inflows=present value of outflows.

At irr;Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=100,000/1.15+120,000/1.15^2

=(100,000*0.870)+(120,000*0.756)

which is equal to

=$177,720

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