A firm is evaluating a proposal which has an initial investment of $50,000 and has cash flows of $15,000 per year for five years.If the firm's required return or cost of capital is 15%, should it accept the project using the IRR as a decision criteria?

Question

Quizplus · Accepted Answer

The IRR (Internal Rate of Return) is the discount rate that makes the NPV (Net Present Value) of the cash flows equal to zero. If the IRR is greater than the firm's required return or cost of capital, the project should be accepted. In this case, the IRR is approximately 14.49%, which is less than the required return of 15%, so the project should not be accepted.

A Firm Is Evaluating a Proposal Which Has an Initial