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A project has a discount rate of 14 percent, an initial cost of $99,200, an inflow of $56,400 in year 1 and an inflow of $75,900 in year 2. Your boss requires that every project return a minimum of $1.10 for every $1 invested. Based on this information, what is your recommendation on this project?

Respuesta :

Answer:

I would recommend the project because the return is greater than 10%

Explanation:

We are to determine the internal rate of return of the project

rate of return the boss requires = (1.1 /1) - 1 = 10%

Internal rate of return is the discount rate that equates the after-tax cash flows from an investment to the amount invested

IRR can be calculated with a financial calculator  

Cash flow in year 0 = -99200

cash flow in year 1 and 2 = 75900

IRR = 33.7%

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