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    BMI project's IRR

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    BMI is considering a project that has a cost of $33,578.17 and it's expected net cash inflows are $12,000 per year for 4 years. What is the project's IRR?

    10%
    13%

    16%

    18%

    --

    A firm with a cost of capital of 13 percent is evaluating three capital projects. The internal rates of return are as follows:

    Project Internal Rate of Return

    1 12%

    2 15

    3 14

    The firm should __________.
    (hint: Positive NPV is the key)

    A) accept Project 2 and reject Projects 1 and 3

    B) accept Projects 2 and 3 and reject Project 1

    C) accept Project 1 and reject Projects 2 and 3

    D) accept Project 3 and reject Projects 1 and 2

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    Solution Preview

    BMI is considering a project that has a cost of $33,578.17 and it's expected net cash inflows are $12,000 per year for 4 years. What is the project's IRR?

    10%
    13%

    16%

    18%

    IRR is the rate at which NPV = 0

    - 33,578.17 + 12000(1+I)^1 + ...

    $2.19

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