Logo
Home Study Material Contact Search
AI Chat FREE
  1. business
  2. finance
  3. 2. internal rate of return (irr) the internal rate

2. Internal rate of return (IRR) The internal rate of return (IRR) refers to the...

80.2K

Verified Solution

Question

Finance

imageimage

2. Internal rate of return (IRR) 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: Falcon Freight is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of $1,500,000. 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 the IRR is a better method because percentages and returns are easier to understand and to compare to required returns. Falcon Freight's WACC is 9%, and project Delta has the same risk as the firm's average project. The project is expected to generate the following net cash flows: Cash Flow Year Year 1 Year 2 Year 3 $275,000 $400,000 $500,000 Year 4 $400,000 Which of the following is the correct calculation of project Delta's IRR? O 1.86% O 2.05% 2.14% 2.23% If this is an independent project, the IRR method states that the firm should If the project's cost of capital were to increase, how would that affect the IRR? O The IRR would not change. O The IRR would increase. O The IRR would decrease

Answer & Explanation Solved by verified expert
Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:
  • Unlimited Question Access with detailed Answers
  • Zin AI - 3 Million Words
  • 10 Dall-E 3 Images
  • 20 Plot Generations
  • Conversation with Dialogue Memory
  • No Ads, Ever!
  • Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
Become a Member

Other questions asked by students

Q

Briefly explain the following methods; the CAPM method, the DCF method, and the bond-yield-plus-risk-premium method

Finance
Q

Jasmeesa is performing a blood typing lab. She takes her own blood sample and mixes I...

Medical Sciences
Q

Question 1. a) Modern Methods of Construction (MMC) is a term which has been commonly applied...

Civil Engineering
Q

What is the relationship between Microvilli of gut, epithelium, glucose, circulatory system, capillary fenestrations, glucose/ATP/life. Major emphasis...

Biology
Q

1. Optical fibers can be classified according to the number of modes and their refractive index...

Physics
Q

Two capacitors C 2uF and C 6 F in series are connected in parallel to...

Physics
Q

Two resistors of resistance Rand 3R have thermal coefficients of resistance a and 2a respectively...

Physics
Q

The displacement of harmonic simple motion by y A Asinot Bcosoot Then the amplitude of...

Physics
Q

Determine the indicated probability for a binomial experiment with the given number of trials n...

Statistics
Q

What is the minimum number of years over which computers may be depreciated under MACRS?

Accounting
Q

answer 1, 2, please. thanks You are the lawyer for...

Accounting
Q

hows a credit default swap used to manage risk

Finance