Idaho Industries Inc.is considering a project that has an initial after-tax outlay or after-tax cost of $450,000.The respective future cash inflows from its five-year project for years 1 through 5 are $95,000 each year.Idaho expects an additional cash flow of $60,000 in the fifth year.The firm uses the IRR method and has a hurdle rate of 10%.Will Idaho accept the project?
A)Idaho accepts the project because it has an IRR greater than 10%.
B)Idaho rejects the project because it has an IRR less than 10%.
C)Idaho accepts the project because it has an IRR greater than 5%.
D)There is not enough information to answer this question.

Question

Quizplus · Accepted Answer

The IRR of the project is less than 10%, as the total cash inflows do not sufficiently exceed the initial outlay when discounted at the hurdle rate of 10%.