question archive For each of the projects shown in the following table, calculate the internal rate of return (IRR)
For each of the projects shown in the following table, calculate the internal rate of return (IRR)
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For each of the projects shown in the following table, calculate the internal rate of return (IRR). Then indicate, for each project, the maximum cost of capital that the firm could have and still find the IRR acceptable.
Project A Project B Project C Project D
Initial investment (CF0) 90,000 490,000 20,000 240,000
Year (t) Cash Inflows (CFt)
1 20,000 150,000 7,500 120,000
2 25,000 150,000 7,500 100,000
3 30,000 150,000 7,500 80,000
4 35,000 150,000 7,500 60,000
5 40,000 ------------ 7,500 ------------
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Answer:
We can find the IRR of the series of cash flows using IRR function. Click on the function wizard,select IRR function, select the rane of cash flows and press enter. Below is the table showing IRR of each project.
|
Years |
Project A | Project B | Project C | Project D |
| 0 | -90000 | -490000 | -20000 | -240000 |
| 1 | 20000 | 150000 | 7500 | 120000 |
| 2 | 25000 | 150000 | 7500 | 100000 |
| 3 | 30000 | 150000 | 7500 | 80000 |
| 4 | 35000 | 150000 | 7500 | 60000 |
| 5 | 40000 | 7500 | ||
| IRR | 17.43% | 8.62% | 25.41% |
21.16% |
So, the the maximum cost of capital that the firm could have and still find the IRR acceptable.
A: 18% B. 9% C 26% D 22%
