Chapter 10, Problem 10.26P

Integrative: Multiple IRRs Froogle Enterprises is evaluating an unusual investment project. What makes the project unusual is the stream of cash inflows and outflows shown in the following table.

Year	Cash flow
0	$ 200,000
1	–920,000
2	1,582,000
3	–1,205,200
4	343,200

1. a. Why is it difficult to calculate the payback period for this project?
2. b. Calculate the investment’s net present value at each of the following discount rates: 0%, 5%, 10%, 15%, 20%, 25%, 30%, 35%.
3. c. What does your answer to part b tell you about this project’s IRR?
4. d. Should Froogle invest in this project if its cost of capital is 5%? What if the cost of capital is 15%?
5. e. In general, when faced with a project like this one, how should a firm decide whether to invest in the project or reject it?