Question

stion Cotipletona 2.00 QUESTION 1 ch 22 prob 2 An investment cost $23958 and vill generate cash flow of $6000 annually for five years. The cost of capital is 6%, what is the IRA? Based on the IRR, should the firm make the investment? O 8% yes it should be made because it exceeds the cost of capital 5% no it should not be made because it is less than the cost of capital 8% no it should not be made because it exceeds the cost of capital 6% yes it should be made because it equals the cost of capital Click Scve and Submit to save and submit. Ctck Save All Answers to save all answers Save All Answers 2 4 6 YÍİU

Answer 1

Initial Investment = $23,958
Annual Cash Inflow = $6,000
Life of Project = 5 years

Let IRR be i%

NPV = -$23,958 + $6,000/(1+i) + $6,000/(1+i)^2 + $6,000/(1+i)^3 + $6,000/(1+i)^4 + $6,000/(1+i)^5
0 = -$23,958 + $6,000/(1+i) + $6,000/(1+i)^2 + $6,000/(1+i)^3 + $6,000/(1+i)^4 + $6,000/(1+i)^5

Using financial calculator, i = 8%

IRR of the investment is 8%

So, 8%, yes it should be made because it exceeds the cost of capital.