Problem:
Frankies, LLC. is considering a project that has an initial outlay of $150,000. The respective future cash inflows from its four-year project for years 1 through 4 are: $60,000, $70,000, $75,000, and $70,000, respectively. Frankies uses the internal rate of return method to evaluate projects. Will Frankies accept the project if its opportunity cost is 12%?
Answer
- Frankies will not accept this project because its IRR is about 6.50%.
- Frankies will not accept this project because its IRR is about 9.60%.
- Frankies will accept this project because its IRR is about 29.54%.
- Frankies will accept this project because its IRR is about 18.70%.
Note: Please show how to work it out.