A company is considering a 5-year project. It plans to invest $60,000 now and it forecasts cash flows for each year of $16,200. The company requires a hurdle rate of 12%. Calculate the internal rate of return to determine whether it should accept this project. Selected factors for a present value of an annuity of 1 for five years are shown below:

Question

A company is considering a 5-year project. It plans to invest $60,000 now and it forecasts cash flows for each year of $16,200. The company requires a hurdle rate of 12%. Calculate the internal rate of return to determine whether it should accept this project. Selected factors for a present value of an annuity of 1 for five years are shown below:
A company is considering a 5-year project. It plans to invest $60,000 now and it forecasts cash flows for each year of $16,200. The company requires a hurdle rate of 12%. Calculate the internal rate of return to determine whether it should accept this project. Selected factors for a present value of an annuity of 1 for five years are shown below:

Manbir Ghuman · Accepted Answer

Final Answer :

Investment/Annual net cash flows = $60,000/$16,200 = 3.704
The present value factor of 3.704 falls between 10% and 12%. This project earns more than 10% but less than 12%. If the hurdle rate is 12%, this project should be rejected.

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