5. use excel?s irr function for this problem. rancho cucamonga has a 6% cost of capital. the firm has an investment opportunity that costs $2,000. riverside expects the investment to generate annual cash inflows $600 for each of the next four years. the internal rate of return and rancho?s decision are a. 1.7% and invest in the project. b. 1.7% and don?t invest in the project. c. 7.7% and invest in the project. d. 7.7% and don?t invest in the project.

If the cost of capital is 6%,cost is $2000 and cash inflows is $600 then the IRR is approximately 8% and Rancho invests in this because it is greater than 6% which is the cost of capital.

Given that the cost of capital is 6%,cost is $2000 and cash inflows is $600.

We are required to find the IRR of the investment project.

The internal rate of return is basically a metric used in financial analysis to estimate the profitability of potential investments. IRR is basically the discount rate that makes the net present value of all cash flows equal to zero in a discounted cash flow analysis. The cost is taken to be negative.

The IRR calculation is shown in figure.

Hence if the cost of capital is 6%,cost is $2000 and cash inflows is $600 then the IRR is approximately 8% and Rancho invests in this because it is greater than 6% which is the cost of capital.

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