Project X has the following cash flows: C0 = +2000, C1 = -1,300 and C2 = -1,500. If the
IRR of the project is 25% and if the cost of capital is 18%, you would:
A) Accept the project
B) Reject the project
This is a loan project therefore reject.

Question

Quizplus · Accepted Answer

The IRR of 25% is higher than the cost of capital of 18%, which means that the project is expected to generate a positive return. However, since the cash flows are negative in years 1 and 2, this is likely a loan project where negative cash flows represent repayments. As a result, accepting the project would mean taking on additional debt and increasing financial risk. Therefore, the project should be rejected.

Project X Has the Following Cash Flows: C0 = +2000