Evaluate the following project using an IRR criterion, based on a required rate of
return of 10%:

CF0 = −6,000
CF1 = 3,300
CF2 = 3,300

Question

Evaluate the following project using an IRR criterion, based on a required rate of 
return of 10%:

CF0 = −6,000
CF1 = 3,300
CF2 = 3,300

BlackTom AI · Accepted Answer

Let’s lay out the problem first: we’re evaluating a project with CF0 = -6,000, CF1 = 3,300, and CF2 = 3,300, using a required return (RRR) of 10%. The four answer choices present different rationales for acceptance or rejection.
Option A: 'Accept, since IRR is greater than RRR.' This would be correct only if the internal rate of return exceeded the required return. To check, compute the IRR roughly: at a 10% discount rate, the present value of inflows is 3,300/1.1 + 3,300/1.21 ≈ 3,000 + 2,727.27 ≈ 5,727.27, so NPV ≈ -6,000 + 5,727.27 = -272.73. Since NPV is negative at the 10% rate, the IRR must be lower than 10%, not higher. Therefore this option is incorrect.
Option B: 'Reject, since IRR is less than RRR.' This aligns with the computed intuition: IRR is slightly below 10% because NPV is negative at 10%. When IRR < RRR, the project fails to meet the minimum required return, so a rejection decision is appropriate. This reasoning matches standard IRR decision rules.
Option C: 'Accept, since RRR is greater than IRR.' Saying we should accept because RRR exceeds IRR is internally inconsistent with the typical rule (accept if IRR > RRR). Here the condition stated would imply accepting when the project fails the hurdle, which is why this option is incorrect.
Option D: 'Reject, since IRR is greater than RRR.' This is the opposite of what the data show. Since the IRR is not greater than the required return, this justification is false. The premise (IRR > RRR) does not hold, so the rationale is invalid.
In summary, the only option that correctly reflects the IRR comparison given the cash flows and the 10% hurdle is the one that states to reject because the IRR is less than the required return. The numerical check with NPV at 10% supports this conclusion, reinforcing why the other choices misstate the relationship between IRR and RRR.

MSB-250-300-002 Proctored Midcourse Exam 2

Evaluate the following project using an IRR criterion, based on a required rate of return of 10%: CF0 = −6,000 CF1 = 3,300 CF2 = 3,300

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类似问题

TB MC Qu. 09-51 Based on Lab 9-4 Excel Evaluating Investments Using... Based on Lab 9-4 Excel Evaluating Investments Using IRR, and given the results below, which investment should the company make if they use IRR to evaluate expected performance of each investment?

Question at position 2 (3 marks, difficulty level: Easy) What is the IRR of this project? [table] Year | Project A 0 | -380,000 1 | 180,000 2 | 280,000 3 | 280,000 4 | 280,000 5 | 80,000 [/table]48.86%53.33%52.29%54.38%

Question at position 2 (3 marks, difficulty level: Easy) What is the IRR of this project? [table] Year | Project A 0 | -380,000 1 | 180,000 2 | 280,000 3 | 280,000 4 | 280,000 5 | 80,000 [/table]54.38%52.29%53.33%48.86%

Question at position 2 (3 marks, difficulty level: Easy) What is the IRR of this project? [table] Year | Project A 0 | -380,000 1 | 180,000 2 | 280,000 3 | 280,000 4 | 280,000 5 | 80,000 [/table]48.86%52.29%54.38%53.33%

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