Project X has the following cash flows: C₀ = +2,000,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.

Question

Quizplus · Accepted Answer

The IRR of the project is 25%, which is higher than the cost of capital of 18%. However, the cash flows for years 1 and 2 are both negative, indicating that the project will require additional funding in those years. Since the project has negative cash flows in the first two years and there is no information about the expected cash flows beyond year 3, it is prudent to reject the project.

Project X Has the Following Cash Flows: C0 = +2,000,C1

Project X Has the Following Cash Flows: C₀ = +2,000,C₁