A firm is considering a project with the following cash flows: Time 0 = +$20,000,Years 1-5 = −$4,500.Should the project be accepted if the cost of capital is 10%?
A) Yes; The IRR of the project is 4.06%.
B) Yes; The IRR of the project is 12.5%.
C) No; The IRR of the project is 4.06%.
D) No; The IRR of the project is 12.5%.

Question

Quizplus · Accepted Answer

Using a financial calculator: n = 5; PV = $20,000; PMT = −$4,500; FV = 0; CPT i = 4.06%Given the cash flow signs, it resembles borrowing at 4.06% and, therefore, it is acceptable if this is less than the cost of capital.

A Firm Is Considering a Project with the Following Cash