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Suppose that projects cash flows are C0 = $200, 000, C1 = $100, 000, C2 = $70, 000, C3 = $50, 000. Required rate of
Suppose that projects cash flows are C0 = $200, 000, C1 = $100, 000, C2 = $70, 000, C3 = $50, 000. Required rate of return is 10%.
(a) Based on NPV rule, should you take the project?
(b) Compute IRR of the project.
(c) Do you agree with the following statement: IRR rule prescribes to take the project if required rate of return is below IRR. However, as IRR computed in part (b) is below required rate of return, we should reject the project. If you do not agree, very briefly explain why.
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