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 of an investment is the discount rate that makes the present value of its cash inflows equal to the present value of its cash outflows. To determine whether a project should be accepted or not based on IRR, we compare it to the required return. 
In this case, the required return is 13 percent. If the IRR is greater than 13 percent, the project should be accepted, whereas if the IRR is less than 13 percent, the project should be rejected. 
Using a financial calculator or spreadsheet, we can solve for the IRR of the cash flows provided in the question, which is approximately 11.47 percent. This is less than the required return of 13 percent, by about 1.53 percent. Therefore, the project should be rejected, and the answer is B.

An Investment Has the Following Cash Flows and a Required