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For each of the projects shown in the following table, calculate the internal rate of return (IRR).

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For each of the projects shown in the following table, calculate the internal rate of return (IRR). Then indicate, for each project, the maximum cost of capital that the firm could have and still find the IRR acceptable.

For each of the projects shown in the following table,
Internal Rate of Return
Internal Rate of Return of IRR is a capital budgeting tool that is used to assess the viability of an investment opportunity. IRR is the true rate of return that a project is capable of generating. It is a metric that tells you about the investment... Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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Project A Project B Project C Initial investment (CFo) S90,000 $490,000 20,000 Project D $240,000 Year (t) Cash inflows (CF) $20,000 $150,000 $7,500 50,000 7,500 50,000 7,500 150,000 7,500 7,500 25,000 30,000 35,000 40,000 $120,000 100,000 80,000 60,000 4

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IRR is found by solving Most financial calculators have an IRR key allowing easy computation of ...View the full answer


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Principles of Managerial Finance

Principles of Managerial Finance

ISBN: 978-0133507690

14th edition

Authors: Lawrence J. Gitman, Chad J. Zutter

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The internal rate of return, or IRR, is a metric used to measure the profitability of an investment. It is the discount rate that makes the net present value of an investment equal to zero. To calculate the IRR, we need to know the investment\'s cash flows. These are the inflows and outflows of cash that will result from the investment. For example, an investment in a property might have cash outflows for the purchase price, closing costs, and any renovations, and cash inflows from rent and eventual sale of the property. The IRR is the discount rate at which the NPV of the investment is equal to zero. There are many ways to calculate IRR, from simple spreadsheet functions to more complex financial modeling software. It\'s worth noting that IRR can be a bit tricky when it comes to projects that don\'t have a consistent cash flow over time. These types of investments are known as \"irregular cash flow\" and the IRR might be misleading or not suitable to calculate. There are other metrics to evaluate these investments such as Modified Internal Rate of Return (MIRR) which is a variation of IRR and is used to get more accurate results.

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