Question

Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 7 percent, and that the maximum allowable payback and discounted payback statistics for the project are 3.5 and 4.5 years, respectively.

Time:	0	1	2	3	4	5	6
Cash flow:	–$8,000	$1,100	$2,300	$1,500	$1,500	$1,300	$1,100

Use the IRR decision rule to evaluate this project. (Negative amount should be indicated by a minus sign. Round your answer to 2 decimal places.)

Answer 1

Under IRR rule, a project should be considered for investment if the IRR is greater than the required return.

The project shouldn't be considered for investment because the IRR of 2.94% is far below the required rate of return of 7%.