Question

Kiley Electronics is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's IRR can be less than the cost of capital (and even negative), in which case it will be rejected.

Year 0 1 2 3
Cash flows −$1,100 $450 $470 $490

Answer 1

The IRR (Internal Rate of Return) for Kiley Electronics' project cannot be calculated exactly with the given cash flow data. However, an estimation can be made by trying different interest rates and finding the rate that brings the present value of the cash flows closest to the initial investment.

Step-by-step explanation:

The IRR (Internal Rate of Return) for Kiley Electronics' project can be determined by finding the interest rate at which the project's net present value is zero. You can calculate the IRR using a financial calculator or software. However, in this case, we don't have access to the cash flows for each year, so we cannot provide an exact IRR. We can only make an estimation based on the cash flow data given.

Based on the cash flow data provided, we can see that the project has an initial investment of -$1,100 and positive cash flows of $450, $470, and $490 in the subsequent years. The IRR represents the interest rate at which the present value of the project's cash inflows equals the initial investment. As we don't have the discount rate or interest rate, we cannot calculate the exact IRR.

However, we can estimate the IRR by using trial and error or interpolation methods. By trying different interest rates, we can find the rate that brings the present value of the cash flows closest to the initial investment of -$1,100. In this case, based on the cash flow data, it's likely that the IRR is positive and higher than the cost of capital.