Maxwell Feed & Seed is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's projected IRR can be less than the WACC (and even negative), in which case it will be rejected.
WACC 10.00%
Year
0
1
2
3
4
5
Cash flows
-$9,000
$2,000
$2,025
$2,050
$2,075
$2,100
A. 3.39%
B. 4.68%
C. 4.46%
D. 3.34%
E. 3.52%
The chose B but I don't think it is correct
The answer I chose is B
No cash flow data was provided. You have not defined IRR or WACC. Frankly, I don't think you are going to get much help here.
Maxwell Feed & Seed is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's projected IRR can be less than the WACC (and even negative), in which case it will be rejected.
Year
0
1
2
3
4
5
Cash flows
-$9,000
$2,000
$2,025
$2,050
$2,075
$2,100
answers
A. 3.39%
B. 4.68%
C. 4.46%
D. 3.34%
E. 3.52%
THE answer i choose was B.
If you post an attempt to solve the problem as far as you can, chances are that teachers will help you with the math part which is probably where help is needed.
You still have not supplied the full cash flow information.
On the other hand, I have worked out a similar problem. You would have no difficulty solving yours after looking over the calculations of the example.
http://www.jiskha.com/display.cgi?id=1248867678
To determine the project's IRR (Internal Rate of Return), we need to calculate the discount rate at which the project has a Net Present Value (NPV) of zero. In other words, we need to find the discount rate that equates the present value of the project's cash inflows to the initial cash outflow.
To calculate the IRR, we can use the formula:
NPV = 0 = -Initial Cash Outflow + Cash Flow1 / (1 + IRR) + Cash Flow2 / (1 + IRR)^2 + ... + Cash Flown / (1 + IRR)^n
In this case, the initial cash outflow is -$9,000, and the cash flows for years 1 to 5 are $2,000, $2,025, $2,050, $2,075, and $2,100, respectively.
We can use a financial calculator, spreadsheet software, or trial and error to find the applicable discount rate (IRR) that satisfies the above equation.
By calculating the NPV using different discount rates, we find that the IRR for this project is approximately 4.46% (option C). This means that the project's return exceeds the WACC (10%) and is considered acceptable.
Therefore, the correct answer is C. 4.46%.
Years 0 1 2 3 4 5
cash flow
-$9,000
$2,000
$2,025
$2,050
$2,075
$2,100