Company is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's IRR can be less than the WACC or negative, in both cases it will be rejected.
A)14.05%
B)15.61%
C)17.34%
D)19.27%
E)21.20%

Question

Quizplus · Accepted Answer

To calculate the IRR, we need to find the discount rate that makes the net present value (NPV) of the project equal to zero. Using a financial calculator or spreadsheet, we find that the IRR of this project is 19.27%. This is higher than the company's weighted average cost of capital (WACC), which means that the project is expected to generate a return that exceeds the cost of capital, and therefore should be accepted. Options A, B, and C have IRRs that are lower than the WACC, and option E is not a valid choice.

Company Is Considering a Project That Has the Following Cash