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
icon
Related questions
Question
### 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.
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.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Cash Flow Statement Analysis
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education