Question

You have a chance to participate in a project that produces the following cash flows:

___C0__________C1__________C2___

-$10,000      -10,000     +$25,000

The internal rate of return is 15.83% per year. If the opportunity cost of capital is 10.00% per year, would you accept the offer?

Yes, I would accept the offer

No, I would not accept the offer

Answer 1

IRR=15.83% , cost of capital = 10%

NPV of the project is

NPV= C0 + C1/(1+r) + C2/(1+r)^2

NPV= -10,000 -10,000/1.1 + 25,000/1.1^2  

NPV = 1570

Since NPV is positive, I would accept the offer