Palmer Soaps is considering a project to expand its line of hand soaps for mechanics and hard laborers. The project has an initial investment of $187,000. Annual cash flows are expected to be $52,000 for five years. Based on the internal rate of return (IRR) of the project, should the company accept the project if their required rate of return is 11%?

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Business

Mata

7 July, 16:15

Palmer Soaps is considering a project to expand its line of hand soaps for mechanics and hard laborers. The project has an initial investment of $187,000. Annual cash flows are expected to be $52,000 for five years. Based on the internal rate of return (IRR) of the project, should the company accept the project if their required rate of return is 11%?

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Juliette Brandt · Answer 1

The project should be accepted.

Explanation:

Giving the following information:

The project has an initial investment of $187,000. Annual cash flows are expected to be $52,000 for five years.

IRR = 11%

NPV = - Io + ∑[Cf / (1+i) ^n]

Cf = cash flow

For example:

Year 3 = 52,000/1.11^3 = 38,021.95

NPV = 5,186.65

The project should be accepted.