Smith and Company are considering investing in a project to streamline their production process. The cash flows are shown below. The required rate of return for projects of this class is 8%.

Time 0 1 2 3 4 5 6

Cash flow -200,000 55,000 65,000 10,000 35,000 25,000 10,000

Given the information above, Smith and Company now estimates that the cash flow in year 1 will be 150,000 instead of 200,000.

Calculate the IRR. Based on the IRR calculation should the project be accepted or rejected.

E 11 NPV IS NEGATIVE, REJECT IT NPV IS NEGATIVE, REJECT IT