A firm evaluates all of its projects by applying the IRR rule. The current proposed project...
A firm evaluates all of its projects by applying the IRR rule. The current proposed project has cash flows of −$120,048, $16,850, $15,700, $39,300, $52,369, and $47,893 for Years 0 to 5, respectively. The required return is 12 percent. Should the project be accepted based on the IRR?
Homework Answers
| 10.00% | 11% | ||||||||
| NPV@ 0.1 | PV@ 0.11 | ||||||||
| Year | Cash flow | PV factor | PV-Cash flow | PV factor | PV-Cash flow | ||||
| 0 | (120,048.00) | 1.000 | (120,048.00) | 1.000 | (120,048.00) | ||||
| 1 | 16,850.00 | 0.909 | 15,318.18 | 0.901 | 15,180.18 | ||||
| 2 | 15,700.00 | 0.826 | 12,975.21 | 0.812 | 12,742.47 | ||||
| 3 | 39,300.00 | 0.751 | 29,526.67 | 0.731 | 28,735.82 | ||||
| 4 | 52,369.00 | 0.683 | 35,768.73 | 0.659 | 34,497.08 | ||||
| 5 | 47,893.00 | 0.621 | 29,737.78 | 0.593 | 28,422.16 | ||||
| Total PV | 3,278.58 | Total FV | (470.28) | ||||||
| IRR | =Lower rate + Difference in rates*(NPV at lower rate)/(Lower rate NPV-Higher rate NPV) | ||||||||
| '=0.1+ (0.11-0.1)*(3278.5/(3278.5-(-470.2) | |||||||||
| 10.87% | |||||||||
| Since IRR is almost 11% as compared to required return of 12%, it is not recommended to take up project | |||||||||
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A firm evaluates all of its projects by applying the IRR rule.
The current proposed project...
A firm evaluates all of its projects by applying the IRR rule. A firm evaluates all...
A firm evaluates all of its projects by applying the IRR
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