A firm evaluates all of its projects by applying the IRR rule. The required return for the following project is 21 percent. The IRR is _____ percent and the firm should ______ the project.    Year     cash flow       0      -$28,643      1         21,000      2         16,000      3          4,000 67 percent; reject26 percent; accept26 percent; reject30 percent; accept30 percent; reject

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Asked Jul 18, 2019
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A firm evaluates all of its projects by applying the IRR rule. The required return for the following project is 21 percent. The IRR is _____ percent and the firm should ______ the project.

    Year     cash flow

       0      -$28,643

      1         21,000

      2         16,000

      3          4,000

 

  1. 67 percent; reject
  2. 26 percent; accept
  3. 26 percent; reject
  4. 30 percent; accept
  5. 30 percent; reject
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Expert Answer

Step 1

Calculation of IRR:

Using Excel Spreadsheet:

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foi IRR(B2:B5) В6 C Year Cash Flows ($28,643) $21,000 $16,000 $4,000 1 2 0 3 1 6 IRR 26.30%

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Step 2

The IRR is 26% (rounded to nearest) and the firm should ACCEPT the project. Because the IRR is higher than the required return of the pr...

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