Rogue River, Inc. is considering a project that has an initial outlay or cost of $220,000
The respective future cash inflows from its four-year project for years 1 through 4 are: $50,000, $60,000, $70,000, and $80,000, respectively. Rogue River uses the internal rate of return method to evaluate projects. Will Rogue River accept the project if its hurdle rate is 10%?
A) Rogue River will not accept this project because its IRR is about 9.70%.
B) Rogue River will not accept this project because its IRR is about 8.70%.
C) Rogue River will not accept this project because its IRR is about 6.50%.
D) Rogue River will not accept this project because its IRR is about 4.60%.
Answer: C
Explanation: C) Using a financial calculator or software program like Excel or trial and error (and rounding our answer to two decimal places), we get IRR = 6.50%. Thus, Rogue River will reject the project as its IRR is less than its hurdle rate.
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