Pet World is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's IRR can be less than the WACC (and even negative),in which case it will be rejected.
A)2.08%
B)2.31%
C)2.57%
D)2.82%
E)3.10%

Question

Pet World is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's IRR can be less than the WACC (and even negative),in which case it will be rejected. 
A)2.08% 
B)2.31% 
C)2.57% 
D)2.82% 
E)3.10%

Quizplus · Accepted Answer

The project's cash flows are as follows:

Year 0: -$1,000,000
Year 1: $100,000
Year 2: $300,000
Year 3: $600,000
Year 4: $900,000

Using a financial calculator or Excel, the project's internal rate of return (IRR) is found to be 2.57%.

Since the project's IRR is greater than the company's weighted average cost of capital (WACC), the project is acceptable. Therefore, the best choice is option C.

Pet World Is Considering a Project That Has the Following