Question

In: Finance

Lee and Joe are both considering the same project with the cash flows shown below. Lee...

Lee and Joe are both considering the same project with the cash flows shown below. Lee is content earning 8 percent on the project but Joe wants to earn at least 12 percent. Who, if either, should accept this project? Year 0 1 2 3 Cash flow -$67,000 $18,000 $24,000 $42,000

A. neither Lee nor Joe

B. both Lee and Joe

C. Lee, but not Joe

D. Lee, Joe can go either accept or reject as his NPV is zero

E. Joe, but not Lee

Solutions

Expert Solution

Calculating IRR of project,

67,000 = 18,000/(1 + IRR) + 24,000/(1 + IRR)2 + 42,000/(1 + IRR)3

Using Trial and Error,

IRR = 10.55%

As Lee require 8% so project will be accepted but Joe won't accept as 12% > 10.55%

Lee, but not Joe

jeff jeffy answered 2 years ago
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