Maxwell Feed & Seed Is Considering a Project That Has

question 92

Short Answer

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. $\begin{array}{c}\begin{array}{lll} \text {Year}\\\text {Cash flows}\end{array}\begin{array}{c} 0 \\\hline -\$9,500\end{array}\begin{array}{c}1 \\\hline \$2,000\end{array}\begin{array}{c}2 \\\hline \$2,025\end{array}\begin{array}{c}3 \\\hline \$2,050\end{array}\begin{array}{c}4 \\\hline \$2,075\end{array}\begin{array}{c}5 \\\hline \$32,100\end{array}\end{array}$

a $2.08 \%$
b. $2.31 \%$
c. $2.57 \%$
d. $2.82 \%$
e. $3.10 \%$

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Definitions:

Liabilities

Financial obligations or debts that a company owes to others.

Debt

Money owed by one party to another under the condition of repayment, often including interest charges.

Profitability

The capability of a business to generate earnings greater than its expenses over a specific period, resulting in a profit.

Liabilities To Stockholders' Equity

Liabilities to Stockholders' Equity ratio indicates the financial leverage of a company, comparing the total liabilities to the total stockholders' equity to assess financial health.