Question

Billabong Tech uses the internal rate of return​ (IRR) to select projects. Calculate the IRR for each of the following projects and recommend the best project based on this measure. Project​ T-Shirt requires an initial investment of ​$17 comma 333 and generates cash inflows of ​$8 comma 500 per year for 4 years. Project Board Shorts requires an initial investment of ​$27 comma 667 and produces cash inflows of ​$13 comma 000 per year for 5 years.

Answer 1

Project t shirt IRR = 33.69%

Project board short IRR = 37.39%

I would recommend project board short because its IRR is higher.

Step-by-step explanation:

The internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested.

IRR can be calculated using a financial calculator:

For Project​ T-Shirt ,

Cash flow in year 0 = -$17,333

Cash flow each year from year one to four = $8,500

IRR = 33.69%

Project Board Shorts,

Cash flow in year 0 = -$27,667

Cash flow each year from year one to five = $13,000

IRR = 37.39%

Project Board Shorts would be chosen because its IRR is higher than that of the other project.

To find the IRR using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the IRR button and then press the compute button.

I hope my answer helps you