25.5.B.2 - Internal Rate of Return (IRR)
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Practice Questions
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What is IRR?
💡 Hint: What does NPV equal when IRR is used?
When should a project be accepted based on IRR?
💡 Hint: Think about the comparison with required rates.
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Interactive Quizzes
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What does IRR stand for?
💡 Hint: What does IRR measure in relation to investments?
If the IRR of a project is less than the required rate of return, what should be the decision?
💡 Hint: Reflect on the comparison rule for project acceptance.
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Challenge Problems
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A project requires an initial investment of $5,000 and generates cash inflows of $1,200 annually for 6 years. Calculate the IRR and assess if the project is favorable if the required rate of return is 8%.
💡 Hint: Use software to find the IRR accurately.
Consider two projects, A with cash flows of $1,000 per year for 5 years and an initial cost of $3,500, and B with cash flows of $1,500 per year but an initial cost of $5,000. Calculate their IRRs and suggest which project is preferable.
💡 Hint: Calculate NPV at different rates to determine IRR for both projects.
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