In finance, the net present value (NPV) and internal rate of return (IRR) are qu
ID: 2789434 • Letter: I
Question
In finance, the net present value (NPV) and internal rate of return (IRR) are quantitative methods that can be used to evaluate cash flow data in corporate investment decisions. Please use the IRR method to solve the following problem. Consider projects A and B:
Cash flows
Cash flows
Cash flows
in year 0
in year 1
in year 2
A
-40,000
24,000
26,000
B
-58,000
34,000
39,000
Which project is better based on the IRR rule (that is, which project has higher IRR)?
What is the IRR for each project?
Answer:
Cash flows
Cash flows
Cash flows
in year 0
in year 1
in year 2
A
-40,000
24,000
26,000
B
-58,000
34,000
39,000
Explanation / Answer
IRR of A = 16.02%
IRR of B = 16.39%
choose B
Cash flows Year (40,000.00) 0 24,000.00 1 26,000.00 2