A project has an initial cash inflow of $87,700 and cash flows of -$48,700 in Year 1 and -$57,200 in Year 2.The discount rate is 14 percent.Should this project be accepted or rejected based on IRR? Why?
A)Accepted,because this is a financing project and the IRR is less than the discount rate.
B)Rejected,because this is an investing project and the IRR is less than the discount rate.
C)Accepted,because this is a financing project and the IRR is greater than the discount rate.
D)Rejected,because this is an investing project and the IRR is greater than the discount rate.
E)Accepted,because the IRR equals the discount rate.

Question

Quizplus · Accepted Answer

IRR = $87,700 + (-$48,700)/ (1 + IRR)+ (-$57,200)/ (1 + IRR)² IRR = 13.16% NPV = $87,700 + (-$48,700)/ 1.14 + (-$57,200)/ 1.14² NPV = $967.16 Because this is a financing-type project,the project should be accepted since the IRR of 13.16 percent is less than the discount rate of 14 percent.This is verified by the positive NPV at the 14 percent rate.

A Project Has an Initial Cash Inflow of $87,700 and Cash