Nichols Inc. is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's IRR can be less than the cost of capital or negative, in both cases it will be rejected. Year 0 1 2 3 4 5Cash flows - $1,250 $325 $325 $325 $325 $325a. 9.43%b. 9.91%c. 10.40%d. 10.92%e. 11.47%

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Business

Trevon Potts

21 November, 19:44

Nichols Inc. is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's IRR can be less than the cost of capital or negative, in both cases it will be rejected. Year 0 1 2 3 4 5Cash flows - $1,250 $325 $325 $325 $325 $325a. 9.43%b. 9.91%c. 10.40%d. 10.92%e. 11.47%

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Terry Shah · Answer 1

a. 9.43%

Explanation:

IRR is the rate of return that makes initial investment equal to present value of cash inflows

Initial investment = Annuity*[1 - 1 / (1 + r) ^n] / r

1250 = 325 * [1 - 1 / (1 + r) ^5] / r

Using trial and error method, i. e., after trying various values for R, lets try R as 9.43%

1250 = 325 * [1 - 1 / (1 + 0.0943) 5] / 0.0943

1250 = 325 * 3.846639

1250 = 1,250

Therefore, The project IRR is 9.43%