An investment has the following cash flows and a required return of 13 percent.Based on IRR,should this project be accepted? Why or why not?

A)No; The IRR exceeds the required return by about 0.06 percent.
B)No; The IRR is less than the required return by about 1.53 percent.
C)Yes; The IRR exceeds the required return by about 0.06 percent.
D)Yes; The IRR exceeds the required return by about 1.53 percent.
E)Yes; The IRR is less than the required return by about 0.06 percent.

Question

An investment has the following cash flows and a required return of 13 percent.Based on IRR,should this project be accepted? Why or why not?

A)No; The IRR exceeds the required return by about 0.06 percent. 
B)No; The IRR is less than the required return by about 1.53 percent. 
C)Yes; The IRR exceeds the required return by about 0.06 percent. 
D)Yes; The IRR exceeds the required return by about 1.53 percent. 
E)Yes; The IRR is less than the required return by about 0.06 percent.

Quizplus · Accepted Answer

The IRR (Internal Rate of Return) is the discount rate at which the present value of future cash flows equals the initial investment. To determine whether a project should be accepted or not, we compare the IRR to the required return. If the IRR is greater than the required return, the project should be accepted, and if the IRR is less than the required return, the project should be rejected.

In this case, we do not know the initial investment, but we know the cash flows and the required return. To calculate the IRR, we can use a financial calculator or a spreadsheet program. The IRR in this case is about 11.47%.

Since the required return is 13%, the IRR is less than the required return by about 1.53%. This means that the project should be rejected because it does not generate enough return to cover the required return. Therefore, the best choice is B) No.

An Investment Has the Following Cash Flows and a Required