A coworker is asking for your help. He is considering
investing in a project with the following future cash
flows:
Year 1: $57,000
Year 2: $72,000
Year 3: $78,000
If the initial outlay for the project is $185,000, and investor's
required rate of return is 5%. Should your coworker invest the
project, and why?
A. No, because the project's IRR is lower than
5%
B. Yes, because the project's profitability index
is lower than 1.
C. Yes, because the project's IRR is higher than
5%.
D. No, because the project's NPV is negative.