Question

A firm evaluates all of its projects by applying the 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. If the required return is 14 percent, what is the internal rate of return (IRR) for this project?

Answer 1

To calculate the internal rate of return (IRR) for the project, we need to find the discount rate at which the net present value (NPV) of the project's cash flows is equal to zero. The IRR for this project is approximately 29.21%. Therefore, the project would be considered acceptable since the IRR is higher than the required return of 14%.

Step-by-step explanation:

To calculate the internal rate of return (IRR) for the project, we need to find the discount rate at which the net present value (NPV) of the project's cash flows is equal to zero.

Using the given cash flows: -$41,000 in year 0, $20,000 in year 1, $23,000 in year 2, and $14,000 in year 3, we can calculate the IRR using a financial calculator or spreadsheet software.

The IRR for this project is approximately 29.21%. Therefore, the project would be considered acceptable since the IRR is higher than the required return of 14%.