A project requires, as its only cost, an initial investment of
$17,000. It then generates positive future cash flows. The
appropriate discount rate is 22%. This project has an NPV of -$935
(negative NPV). What can you say about this project’s IRR?
Homework Answers
If NPV is negative at discount rate it means IRR is less than the discount rate
So, IRR is less than 22%
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Please explain the answer.
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The IRR evaluation method
assumes that cash flows from the project are reinvested at the same
rate equal to the IRR. However, in reality the reinvested cash
flows may not necessarily generate a return equal to the IRR. Thus,
the modified IRR approach makes a more reasonable assumption other
than the project’s IRR.
4. Modified internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the...
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