[xodiana]

I had this as a homework problem & the back of the book had a different answer. If you could just tell me where I made my mistake.

Consider a project with the following cash flows.
Year Cash Flow
0 -$16,000
1 $42,000
2 -$27,000


What's the IRR of the project? If a firm's cost of capital is 15%, should the firm accept the project?

I just simply entered this problem into my calculator under the Finance IRR application. IRR (-16,000, cash flows of 42,000 & - 27,000 which I had in list L1) and it gave me 12.5%which is lower than the cost of capital so you would reject it. The back of my book said the correct answer was 12.5% and 50% accept the project.

[jakester]

I had this as a homework problem & the back of the book had a different answer. If you could just tell me where I made my mistake.

Consider a project with the following cash flows.
Year Cash Flow
0 -$16,000
1 $42,000
2 -$27,000


What's the IRR of the project? If a firm's cost of capital is 15%, should the firm accept the project?

I just simply entered this problem into my calculator under the Finance IRR application. IRR (-16,000, cash flows of 42,000 & - 27,000 which I had in list L1) and it gave me 12.5%which is lower than the cost of capital so you would reject it. The back of my book said the correct answer was 12.5% and 50% accept the project.

When you say "the correct answer was 12.5% and 50% accept the project", what do you mean by "50% accept the project"? Can you elaborate on that part? Not sure what this means.

[xodiana]

In the back of the book it said the IRR was 12.5% and 50% and the second part of the answer said accept the project