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 $17 comma 333 and generates cash inflows of $8 comma 500 per year for 4 years. Project Board Shorts requires an initial investment of $27 comma 667 and produces cash inflows of $13 comma 000 per year for 5 years.

Project t shirt IRR = 33.69%

Project board short IRR = 37.39%

I would recommend project board short because its IRR is higher.

Explanation:

The internal rate of return is the discount rate that equates the after tax cash flows from an investment to the amount invested.

IRR can be calculated using a financial calculator:

For Project T-Shirt ,

Cash flow in year 0 = -$17,333

Cash flow each year from year one to four = $8,500

IRR = 33.69%

Project Board Shorts,

Cash flow in year 0 = -$27,667

Cash flow each year from year one to five = $13,000

IRR = 37.39%

Project Board Shorts would be chosen because its IRR is higher than that of the other project.

To find the IRR using a financial calacutor:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. After inputting all the cash flows, press the IRR button and then press the compute button.

I hope my answer helps you

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