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Compute the IRR static for Project E
Compute the IRR static for Project E. The appropriate cost of capital is 7 percent. (Do not round intermediate calculations and round your final answer to 2 decimal places.) Project E Time: Cash flow 1 0 -$3,300 $990 2 $960 3 $840 4 $620 5 $420 IRR % Should the project be accepted or rejected? rejected O accepted
Expert Solution
Present value of Cahs Flows A = A/(1+r)n
Where, r is discounting rate per period and n is number of periods.
IRR is the rate at which Present Net Present value of Cash Flows is equal to zero.
Let the IRR be r
This implies,
-3300/(1+r)0 + 990/(1+r)1 +960/(1+r)2 +840/(1+r)3 +620/(1+r)4 +420/(1+r)5
3300/(1+r)0 = 990/(1+r)1 +960/(1+r)2 +840/(1+r)3 +620/(1+r)4 +420/(1+r)5
Solving the equation,
IRR = 6%
Cost of Capital is 7%
The project should be rejected because IRR of project is less than required Cost of Capital.
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