P10-18 IRR, investment life, and cash inflows
Oak Enterprises accepts projects earning more than the firm's 15% cost of capital. Oak is currently considering a 10-year project that provides annual cash inflows of $10,000 and requires an initial investment of $61,450. (Note: All amounts are after taxes.)
a. Determine the IRR of this project. Is it acceptable?
b. Assuming that the cash inflows continue to be $10,000 per year, how many additional years would the flows have to continue to make the project acceptable
(that is, to make it have an IRR of 15%)?
c. With the given life, initial investment, and cost of capital, what is the minimum
annual cash inflow that the firm should accept?
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