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In: Finance
Billabong Tech uses the internal rate of return (IRR) to select projects. Calculate the IRR for...
Billabong Tech uses the internal rate of return (IRR) to select projects. Calculate the IRR for each of the following projects and recommend the best project based on this measure. Project T-Shirt requires an initial investment of $16, 000 and generates cash inflows of $6,000 per year for 6 years. Project Board Shorts requires an initial investment of $30,667 and produces cash inflows of $11,000 per year for 7 years
Solutions
Expert Solution
Project T-shirt
Internal rate of return is calculated using a financial calculator by inputting the below:
- Press the CF button.
- CF0= -$16,000. It is entered with a negative sign since it is a cash outflow.
- Cash flow for each year should be entered.
- Press Enter and down arrow after inputting each cash flow.
- After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.
The IRR of the project is 29.58%.
Project board shorts
Internal rate of return is calculated using a financial calculator by inputting the below:
- Press the CF button.
- CF0= -$30,667. It is entered with a negative sign since it is a cash outflow.
- Cash flow for each year should be entered.
- Press Enter and down arrow after inputting each cash flow.
- After entering the last cash flow cash flow, press the IRR and CPT button to get the IRR of the project.
The IRR of the project is 30.22%.
In case of any query, kindly comment on the solution.
jeff jeffy answered 9 months agoRelated Solutions
Billabong Tech uses the internal rate of return (IRR) to select projects. Calculate the IRR for...
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projects. Calculate the IRR for each of the following projects and
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inflows of $7,500 per year for 3 years. Project Board Shorts
requires an initial investment of $18,333 and produces cash
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IRR
A project's internal rate of return (IRR) is the -Select-compound
ratediscount raterisk-free rateCorrect 1 of Item 1 that forces the
PV of its inflows to equal its cost. The IRR is an estimate of the
project's rate of return, and it is comparable to the
-Select-YTMcoupongainCorrect 2 of Item 1 on a bond. The equation
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CFt is the expected cash flow in Period t and cash outflows are
treated as negative cash flows. There...
The internal rate of return (IRR) refers to the compound annual rate of return that a...
The internal rate of return (IRR) refers to the compound annual
rate of return that a project generates based on its up-front cost
and subsequent cash flows. Consider this case:
Blue Llama Mining Company is evaluating a proposed capital
budgeting project (project Delta) that will require an initial
investment of $1,450,000.
Blue Llama Mining Company has been basing capital budgeting
decisions on a project’s NPV; however, its new CFO wants to start
using the IRR method for capital budgeting decisions....
The internal rate of return (IRR) refers to the compound annual rate of return that a...
The internal rate of return (IRR) refers to the compound annual
rate of return that a project generates based on its up-front cost
and subsequent cash flows. Consider this case:
Purple Whale Foodstuffs Inc. is evaluating a proposed capital
budgeting project (project Delta) that will require an initial
investment of $1,450,000.
Purple Whale Foodstuffs Inc. has been basing capital budgeting
decisions on a project’s NPV; however, its new CFO wants to start
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The internal rate of return (IRR) refers to the compound annual rate of return that a...
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and subsequent cash flows. Consider this case:
Falcon Freight is evaluating a proposed capital budgeting
project (project Delta) that will require an initial investment of
$1,450,000. Falcon Freight has been basing capital budgeting
decisions on a project’s NPV; however, its new CFO wants to start
using the IRR method for capital budgeting decisions. The CFO says
that...
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The IRR is an estimate of the project's rate of return, and it is
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Initial outlay of $25,000 with an after-tax cash flow $11,500
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investment proposals with:
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b: Long useful lives.
c: Moderate cash flow returns
d: Large residual values
e: Large initial investment.
2. When the internal rate of return (IRR) method and the net
present value (NPV) method do not yield the same recommendation for
the same investment project, the projectt-selection decision should
normally be based on:
a: IRR, because...
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