Compute the IRR statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown below if the appropriate cost of capital is 10 percent.
A) 10%, accept
B) 10%, reject
C) 13.26%, accept
D) 13.26%, 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 below if the appropriate cost of capital is 10 percent. 
A) 10%, accept 
B) 10%, reject 
C) 13.26%, accept 
D) 13.26%, reject

Quizplus · Accepted Answer

To calculate the IRR, we need to find the discount rate at which the NPV of the project equals zero. Using a financial calculator or Excel, we can find that the IRR for  the cash flows shown is approximately 13.26%. Since this is higher than the required rate of return of 10%, the project should be accepted. Therefore, the answer is C.

Compute the IRR Statistic for Project X and Note Whether