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17 October, 15:09

Kiley Electronics 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 (and even negative), in which case it will be rejected. Year 0 1 2 3Cash flows - $1,100 $450 $470 $490a. 9.70%b. 10.78%c. 11.98%d. 13.31%e. 14.64%

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  1. 17 October, 15:29
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    d. 13.31%

    Explanation:

    IRR is the rate at which NPV = 0

    IRR 13.31%

    Year 0 1 2 3

    Cash flow stream - 1100.000 450.000 470.000 490.000

    Discounting factor 1.000 1.133 1.284 1.455

    Discounted cash flows project - 1100.000 397.136 366.060 336.804

    NPV = Sum of discounted cash flows

    NPV Project = 0.000

    Where

    Discounting factor = (1 + discount rate) ^ (Corresponding period in years)

    Discounted Cashflow = Cash flow stream/discounting factor

    IRR = 13.31%

    Therefore, The project's IRR is 13.31%
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