Problem 13-19 IRR (LG13-4) Suppose your firm is considering investing in a proje
ID: 2786488 • Letter: P
Question
Problem 13-19 IRR (LG13-4)
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively.
Use the IRR decision rule to evaluate this project. (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.)
Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 8 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively.
Explanation / Answer
Let irr be x%
At irr,present value of inflows=present value of outflows.
5900=1170/1.0x+2370/1.0x^2+1570/1.0x^3+1570/1.0x^4+1370/1.0x^5+1170/1.0x^6
Hence x=IRR=15.17%(Approx)