Compute the IRR statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent.

A)10 percent, accept
B)10 percent, reject
C)13.26 percent, accept
D)13.26 percent, reject

Question

Compute the IRR statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent.

A)10 percent, accept 
B)10 percent, reject 
C)13.26 percent, accept 
D)13.26 percent, reject

Quizplus · Accepted Answer

To calculate the IRR, we need to solve for the discount rate that sets the present value of the cash inflows equal to the initial cash outflow. Using a financial calculator, spreadsheet software, or trial and error, we find that the IRR for Project X is approximately 13.26 percent. Since this IRR is greater than the cost of capital of 10 percent, the project should be accepted.

Compute the IRR Statistic for Project X and Note Whether