You are the CFO of Fractal Imaging, Inc. The company has a required rate of return...
You are the CFO of Fractal Imaging, Inc. The company has a required rate of return of 14%, inflation is 3%, and the risk free rate in 4%. You are evaluating two mutually exclusive projects: Project Nova has an IRR of 13.6%, and Project Skynet has an IRR of 12.9%. Which project(s) should you accept?
Homework Answers
Being the CFO of Fractal Imaging, Inc. I would not choose Project Nova nor Project Skynet, since my required rate of return is 14% and the projects IRR is lesser than 14%. Hence, since my required rate of return is not met, I would not accept any project.
| Required rate of return | Re | % | 14 |
| Inflation | i | % | 3 |
| Risk free rate | Rf | % | 4 |
IRR is the internal rate of return, it does not include inflation.
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