A project has an initial cash inflow of $36,400 and a cash outflow of $42,900 in Year 1.The discount rate is 20 percent.Should this project be accepted or rejected based on IRR? Why?
A)Accepted: because the IRR of 17.86 percent is less than the discount rate
B)Accepted: because the IRR of 15.15 percent is less than the discount rate
C)Accepted: because the IRR of 11.23 percent is less than the discount rate
D)Rejected: because the IRR of 17.86 percent is less than the discount rate
E)Rejected: because the IRR of 15.15 percent is less than the discount rate

Question

Quizplus · Accepted Answer

IRR = $36,400 + (-$42,900)/(1 + IRR)IRR = 17.86%NPV = $36,400 - $42,900/1.20NPV = $650Because this is a financing type project,the project should be accepted since the IRR of 17.86 percent is less than the discount rate of 20 percent.This is verified by the positive NPV at the 20 percent discount rate.

A Project Has an Initial Cash Inflow of $36,400 and a Cash