Billabong Tech uses the internal rate of return (IRR) to select projects. Calculate the IRR for each of the following projects and recommend the best project based on this measure. Project T-Shirt requires an initial investment of $15 comma 00015,000 and generates cash inflows of $8 comma 0008,000 per year for 44 years. Project Board Shorts requires an initial investment of $25 comma 00025,000 and produces cash inflows of $12 comma 00012,000 per year for 55 years.

Question

Guest

Business

3 January, 20:39

Billabong Tech uses the internal rate of return (IRR) to select projects. Calculate the IRR for each of the following projects and recommend the best project based on this measure. Project T-Shirt requires an initial investment of $15 comma 00015,000 and generates cash inflows of $8 comma 0008,000 per year for 44 years. Project Board Shorts requires an initial investment of $25 comma 00025,000 and produces cash inflows of $12 comma 00012,000 per year for 55 years.

+3

Answers (1)

Know the Answer?

Addisyn Dyer · Answer 1

Solution and Explanation:

The follwoing is used to calcuate the internal rate of return for both the projects

Project T-Shirt

Present value = - 15,000, N = 4, PMT = 8,000

Solving for the Internal rate of return = 39.08%

Project Board Shorts

Present value = - 25,000, N = 5, PMT = 12,000

Solving for the Internal rate of return = 38.62%

Based on Internal rate of return analysis, Billabong Tech should choose project T-Shirt.