Benji's has an opportunity with an initial cash flow of $48,900 and future cash flows of -$31,300 in Year 1 and -$21,600 in Year 2.The discount rate is 7 percent.Should this project be accepted or rejected? Why?
A)Accepted;because the IRR of 5.28 percent is less than the discount rate
B)Accepted;because the IRR of 5.77 percent is less than the discount rate
C)Rejected: because the IRR of 5.28 percent is less than the discount rate
D)Rejected;because the IRR of 5.77 percent is less than the discount rate
E)Rejected;because the IRR of 6.01 percent is less than the discount rate

Question

Quizplus · Accepted Answer

IRR = $48,900 + [-$31,300/(1 + IRR)] + [-$21,600/(1 + IRR)²]IRR = 5.77%NPV = $48,900 + (-$31,300/1.07)+ (-$21,600/1.07²)= $781.39Since this is a financing type project,the project should be accepted because the IRR is less than the discount rate.This is confirmed by the positive NPV computed using the discount rate.

Benji's Has an Opportunity with an Initial Cash Flow of $48,900