Simpson,Inc.is considering a five-year project that has an initial outlay or cost of $80,000.The respective future cash inflows from its project for years 1,2,3,4 and 5 are: $15,000,$25,000,$35,000,$45,000,and $55,000.Simpson uses the internal rate of return method to evaluate projects.What is the project's IRR?
A)The IRR is less than 22.50%.
B)The IRR is about 24.16%.
C)The IRR is about 26.16%.
D)The IRR is over 26.50%.

Question

Quizplus · Accepted Answer

Using a financial calculator or spreadsheet, the IRR can be calculated to be approximately 26.16%. This is higher than the required rate of return for Simpson, which means that the project is expected to generate a positive net present value and is therefore acceptable. Option A, B, and D are incorrect as they do not reflect the correct IRR.