Project Y has following cash flows: C₀ = -800, C₁ = +5,000, and C₂ = -5,000. Calculate the IRRs for the project. A)25 percent and 400 percent. B)125 percent and 500 percent. C)-44 percent and 11.6 percent. D)No IRRs exist for this project.

Question

Quizplus · Accepted Answer

The IRR (Internal Rate of Return) is found by solving the equation 0 = -800 + 5000/(1+IRR) - 5000/(1+IRR)^2. This equation has two solutions, which are 25% and 400%, indicating the project has two IRRs.

Project Y Has Following Cash Flows: C0 = -800, C1

Project Y Has Following Cash Flows: C₀ = -800, C₁