A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows: Year Cash Flow -$ 41,000 20,000 23,000 14,000 0. 2. 3. If the required return is 14 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR Should the firm accept the project? O Accept O Reject
A firm evaluates all of its projects by applying the IRR rule. A project under consideration has the following cash flows: Year Cash Flow -$ 41,000 20,000 23,000 14,000 0. 2. 3. If the required return is 14 percent, what is the IRR for this project? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) IRR Should the firm accept the project? O Accept O Reject
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![### Evaluating Projects Using the IRR Rule
A firm evaluates all of its projects by applying the Internal Rate of Return (IRR) rule. A project under consideration has the following cash flows:
| Year | Cash Flow |
|------|------------|
| 0 | -$41,000 |
| 1 | $20,000 |
| 2 | $23,000 |
| 3 | $14,000 |
**Calculation Requirement:**
If the required return is 14 percent, what is the IRR for this project?
**Instructions for Calculation:**
1. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).
2. Enter the computed IRR in the blue box provided.
**IRR:**
[__________] %
Once you have determined the IRR, compare it to the required return of 14 percent to decide whether the firm should accept the project.
Should the firm accept the project?
- [ ] Accept
- [ ] Reject
This exercise helps to understand the decision-making process in capital budgeting by evaluating whether the IRR exceeds the required rate of return, indicating that the project is expected to generate value for the firm.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fae8a11bd-ad7f-47d8-a5c8-89ea0daeecfe%2F3301e679-24f9-46e2-8890-d78ad6ae9530%2Flkxzfn_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Evaluating Projects Using the IRR Rule
A firm evaluates all of its projects by applying the Internal Rate of Return (IRR) rule. A project under consideration has the following cash flows:
| Year | Cash Flow |
|------|------------|
| 0 | -$41,000 |
| 1 | $20,000 |
| 2 | $23,000 |
| 3 | $14,000 |
**Calculation Requirement:**
If the required return is 14 percent, what is the IRR for this project?
**Instructions for Calculation:**
1. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).
2. Enter the computed IRR in the blue box provided.
**IRR:**
[__________] %
Once you have determined the IRR, compare it to the required return of 14 percent to decide whether the firm should accept the project.
Should the firm accept the project?
- [ ] Accept
- [ ] Reject
This exercise helps to understand the decision-making process in capital budgeting by evaluating whether the IRR exceeds the required rate of return, indicating that the project is expected to generate value for the firm.
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