Redbird Company is considering a project with an initial investment of $260,000 in new equipment that will yield annual...
Redbird Company is considering a project with an initial investment of $260,000 in new equipment that will yield annual net cash flows of $41,734 each year over its seven-year life. The company’s minimum required rate of return is 12%.
(Click here to see present value and future value tables)
A. What is the internal rate of return?
%
B. Should Redbird accept the project based on IRR?
Homework Answers
Let irr be x%
At irr,present value of inflows=present value of outflows.
260,000=41734/1.0x+41734/1.0x^2+..............+41734/1.0x^7
Hence x=irr=3%(Approx).
Hence since irr is lesser than required rate;project must be rejected.
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