Question

Marigold Company is considering a long-term investment project called ZIP. ZIP will require an investment of $120,900. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $83,600, and annual cash outflows would increase by $43,300. The company’s required rate of return is 12%. Click here to view PV table.

Calculate the internal rate of return on this project. (Round answers to 0 decimal places, e.g. 15%.)

Internal rate of return on this project is between % and %.

Determine whether this project should be accepted?

The project should/should not be accepted.

Answer 1

1. IRR = 13%

Internal rate of return on this project is between % and %. = 12% and 13%

2. The project should be accepted.

Since, project IRR is higher than required IRR.

Years	Cash Inflow	CashOutflow	Net Cashflow
0	$                 -	$        120,900	$       (120,900)
1	$       83,600	$          43,300	$            40,300
2	$       83,600	$          43,300	$            40,300
3	$       83,600	$          43,300	$            40,300
4	$       83,600	$          43,300	$            40,300
IRR			12.59%