A firm is considering a project that requires an initial investment of $180,000. The life of...

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Finance

A firm is considering a project that requires an initialinvestment of $180,000. The life of this project is five years.Cash flows for each year are estimated as follows:
Year 1 Year 2 Year 3 Year 4 Year 5
$105,000 $190,000 $50,000 -$60,000 -$110,000
The cost of capital of this project is 8%. Calculate theinternal rate of return of the project and make a decision.
Accept since the IRR is 5.04%, which is less than the requiredrate.
Accept since the IRR is 12.68%, which is greater than therequired rate.
Reject since the IRR is 5.04%, which is less than the requiredrate.
Reject since the IRR is 12.68%, which is greater than therequired rate.
Cannot be determined.

Answer & Explanation Solved by verified expert

3.9 Ratings (413 Votes)

Internal Rate of Return IRR for the Project Step 1 Firstly calculate NPV at a guessed discount Rate Say 1200 R1 Year Annual Cash Flow Present Value factor at 1200 Present Value of Cash Flow 1 105000 0892857 93750 2 190000 0797194 151467 3 50000 0711780 See Answer

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Year 1	Year 2	Year 3	Year 4	Year 5
$105,000	$190,000	$50,000	-$60,000	-$110,000