Shanghai Shipping is considering investing in a project that requires an after-tax initial investment of 156 million and is expected to produce after-tax cash inflows of $40 million for each of the next five years. The firm's cost of capital is 10%. Based on this information, the IRR of the project is _________ percent and the firm should _________ the project.
A) 9.9; accept
B) 9.9, reject
C) 8.9, accept
D) 8.9, reject

Question

Quizplus · Accepted Answer

The IRR is calculated by finding the discount rate that makes the NPV of the project zero. In this case, the IRR is approximately 8.9%, which is less than the firm's cost of capital of 10%. Therefore, the firm should reject the project.

Shanghai Shipping Is Considering Investing in a Project That Requires