Compute the IRR statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent. $$\begin{array} { l l l l l l l }
\text { Time: } & 0 & 1 & 2 & 3 & 4 & 5 \
\text { Cash flow: } & - 75 & - 75 & 0 & 100 & 75 & 50
\end{array}$$
A)10 percent, accept
B)10 percent, reject
C)13.26 percent, accept
D)13.26 percent, reject

Question

Compute the IRR statistic for Project X and note whether the firm should accept or reject the project with the cash flows shown as follows if the appropriate cost of capital is 10 percent. $$\begin{array} { l l l l l l l } 
\text { Time: } & 0 & 1 & 2 & 3 & 4 & 5 \
\text { Cash flow: } & - 75 & - 75 & 0 & 100 & 75 & 50
\end{array}$$
A)10 percent, accept
B)10 percent, reject
C)13.26 percent, accept
D)13.26 percent, reject

Quizplus · Accepted Answer

To calculate the IRR, we need to find the discount rate at which the NPV of the project is equal to zero. Using a financial calculator or Excel, we can find that the IRR for this project is approximately 13.26%. Since the project's IRR of 13.26% is greater than the cost of capital of 10%, the project should be accepted. Therefore, choice C is the correct answer.