Thorley Inc. is considering a project that has the following cash flow

QUESTION

Thorley Inc. is considering a project that has the following cash flow data. What is the projects IRR? Note that a projects projected IRR can be less than the WACC or negative, in both cases it will be rejected.Year 0 1 2 3 4 5Cash flows -$1,375 $325 $325 $325 $325 $325a. 7.30%b. 5.55%c. 5.84%d. 7
Ans: b Year Cash Flows Present value factor @ 9% Present value of cash flows (9%) Present value factor @ 10% Present value of cash flows (10%) 0 -$1,250.00 1.0000 -1250.00 1.0000 -1250.00 1 $325.00 0.9174 298.17 0.9091 295.45 2 $325.00 0.8417 273.55 0.8264 268.60 3 $325.00 0.7722 250.96 0.7513 244.18 4 $325.00 0.7084 230.24 0.6830 221.98 5 $325.00 0.6499

3 0.6209 201.80 Total 14.14 -17.99 Internal rate of return = Lower rate (NPV at lower rate/(NPV at Lower rate-NPV at higher rate))* Difference between two rates Internal rate of return 9 (14.14/(14.14 17.99))*1 Internal rate of return 9.44 %

ANSWER:

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