An investment has the following cash flows. Should the project be accepted if it has been assigned a required return of 9.5%? Why or why not?

A) yes; because the IRR exceeds the required return by about 0.39%.
B) yes; because the IRR is less than the required return by about 3.9%.
C) yes; because the IRR is positive.
D) no; because the IRR exceeds the required return by about 3.9%.
E) no; because the IRR is 9.89%.

Question

An investment has the following cash flows. Should the project be accepted if it has been assigned a required return of 9.5%? Why or why not?

A) yes; because the IRR exceeds the required return by about 0.39%. 
B) yes; because the IRR is less than the required return by about 3.9%. 
C) yes; because the IRR is positive. 
D) no; because the IRR exceeds the required return by about 3.9%. 
E) no; because the IRR is 9.89%.

Quizplus · Accepted Answer

We need to calculate the internal rate of return (IRR) of the cash flows and compare it to the required return of 9.5%. Using a financial calculator or spreadsheet, we get an IRR of 9.89%. This exceeds the required return by about 0.39%, which means that the project should be accepted. Choice A is the correct answer.

An Investment Has the Following Cash Flows