# Internal rate of return

2.

Year Cash flow

0 -169,000

1 46,200

2 87,300

3 41,000

4 39,000

Required Payback Period 2.5

Required AAR 7.25%

Required Return 8.50%

Reference: 06_01

Based on the internal rate of return of _____for this project, you should _____ the project. (Points: 2)

8.95%; accept

10.75%; accept

8.44%; reject

9.67%; reject

10.33%; reject

3. The internal rate of return (IRR):

(I) rule states that a typical investment project with an IRR that is less than the required rate should be accepted.

(II) is the rate generated solely by the cash flows of an investment.

(III) is the rate that causes the net present value of a project to exactly equal zero.

(IV) can effectively be used to analyze all investment scenarios. (Points: 2)

I and IV only

II and III only

I, II, and III only

II, III, and IV only

I, II, III, and IV

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#### Solution Preview

internal rate of return 2

2.

Year Cash flow

0 -169,000

1 46,200

2 87,300

3 41,000

4 39,000

Required Payback Period 2.5

Required AAR 7.25%

Required Return 8.50%

Reference: 06_01

Based on the internal rate of return of _____for ...

#### Solution Summary

This provides the steps to calculate the internal rate of return