A firm with a cost of capital of 15% is evaluating two independent projects utilizing the internal rate of return technique.Project X has an initial investment of $80,000 and cash inflows at the end of each of the next five years of $25,000.Project Z has an initial investment of $120,000 and cash inflows at the end of each of the next four years of $40,000.The firm should ________.

Question

Quizplus · Accepted Answer

Project X has an IRR of approximately 18.1%, which is higher than the cost of capital (15%), making it acceptable. Project Z has an IRR of approximately 14.5%, which is lower than the cost of capital, making it unacceptable.

A Firm with a Cost of Capital of 15% Is