Question

You are considering an investment that costs $152,000 and has projected cash flows of $71,800, $86,900, and -$11,200 for years 1 to 3, respectively. If the required rate of return is 15.5 percent, should you accept the investment based solely on the internal rate of return rule

Answer 1

Answer and Explanation:

Given:

Investment cost = $152,000

Projected cash flows = $71,800, $86,900, -$11,200

Rate of return = 15.5% = 15.5 / 100 = 0.155

The internal rate of return is really a way of describing an overall project cost in a ratio rather than in a monetary sum.

Also, in this case, we cannot use the IRR method because cash flow trend changes.

So, we cannot use the IRR method in this situation.