Please assist! I am stuck Initial investment $120,000 Year/Cash inflows 1 $35,00
ID: 2787949 • Letter: P
Question
Please assist! I am stuck
Initial investment $120,000
Year/Cash inflows
1 $35,000
2 $20,000
3 $25,000
4 $35,000
5 $40,000
Internal rate of return For the project shown in the following table, calculate the internal rate o . Then indicate, for the pro ect, the return maximum cost of capital that the firm could have and still find the IRR acceptable. The project's IRR is D6. (Round to two decimal places.) The maximum cost of capital that the firm could have and still find the IRR acceptable is % Round to two decimal places.Explanation / Answer
NPV is calculated by discounting the cashflows
PV = C/(1+r)^n
C - Cashflow
r - Discount rate
n - years to the cashflow
IRR is the rate at which NPV = 0
NPV = -120000 + 35000/(1+IRR)^1 + 20000/(1+IRR)^2 + 25000/(1+IRR)^3 + 35000/(1+IRR)^4 + 40000/(1+IRR)^5 = 0
By trail and error, IRR = 8.71%
The maximum cost of capital for project acceptability would be 8.71%