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internal rate of retunr Ch 11- Pre-Assignment- The Basics of Capital Budgeting Attempts Keep the Highest 1/3 2. Internal rate of return (IRR) The internal
internal rate of retunr
Ch 11- Pre-Assignment- The Basics of Capital Budgeting Attempts Keep the Highest 1/3 2. Internal rate of return (IRR) The internal rafe of retum (IRR) refers to the compound annual rate of return that a project generates based on izs up-front cost and subsequent cash flows. Consider the case of Purple Whale Foodstuffs inc: Purple Whale Foodstuffs Inc. is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of 5800,000 Purple Whale Foodstuffs Inc, has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start using the TFR method for capital budgeting decisions. The CFO says that the IRR is a better method because returns in percentage form are easier to understand and compare to required returns. Purple Whale Foodsturfs Inc."'s WACC is 7%, and project Sigma has the same risk as the firm's average project. The project is expected to generate the following net cash flows: Which of the foilowing is the correct colculation of project Sigma's 1RA? Ch 11- Pre-Assignment - The Basics of Capital Budgeting Which of the following is the correct calculation of project Sigma's IRR? 40.64% 32.51% 46.74% 44.70% If this is an independent project, the IRR method states that the firm should If the project's cost of capital were to increase, how would that affect the IRR? The IRR would decrease. The 1RR would not change. The IRR would increase Step by Step Solution
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