Cooper Industries is considering a project that would require an initial investment of $101,000.The project would result in cost savings of $62,000 in year 1 and $70,000 in year 2.The internal rate of return is

Question

Quizplus · Accepted Answer

To calculate the internal rate of return (IRR), we need to find the discount rate that makes the net present value (NPV) of the project equal to zero. Using a financial calculator or spreadsheet, we can input the cash flows as follows:

Year 0: -$101,000 (initial investment)
Year 1: $62,000
Year 2: $70,000

Using the IRR function, we find that the IRR is approximately 19.8%. This falls within the range of choice B, so the answer is B. This means that the project is expected to generate a return of around 19.8%, which is higher than the company's required rate of return. Therefore, the project is acceptable and should be undertaken.

Cooper Industries Is Considering a Project That Would Require an Initial