A firm evaluates all of its projects by applying the IRR rule. If the required return...

Question

Question

A firm evaluates all of its projects by applying the IRR rule. If the required return is 16%, should the firm accept the following project?

Year Cash Flow

0 -$34,000

1 16,000

2 18,000

3 15,000

I know that:

0 = – $34,000 + $16,000/(1+IRR) + $18,000/(1+IRR)^2+ $15,000/(1+IRR)^3

My question is: What does IRR equal as the answer is IRR= 20.97%

business finance

Answer 1

Answer #1

Using Financial Calculator to calculate IRR
CF0=-34000;CF1=16000;CF2=18000;CF3=15000 CPT IRR =20.97%

Another method is using excel formula

Since IRR is greater than required rate Project must be accepted.

Answer 2

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