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Tedder Mining has analyzed a proposed expansion project and determined that the internal rate of return is lower than the firm desires. Which one of the following changes to the project would be most expected to increase the project's internal rate of return?

a. Decreasing the required discount rate.
b. Increasing the initial investment in fixed assets.
c .Condensing the firm's cash inflows into fewer years without lowering the total amount of those inflows.
d. Eliminating the salvage value.

Respuesta :

Answer:

Option C, Condensing the firm's cash inflows into fewer years without lowering the total amount of those inflows, is the right answer.

Explanation:

Option “c” is the correct answer because the value of the internal rate of return can be increased by condensing the cash inflow of the firm without decreasing the total inflows. However, if the value of the IRR or internal rate of return is greater or more than the discount rate of the project then it will add the value of project. If the internal rate of return is lower than the discount rate of the project then it will destroy the value of the project. Therefore, in the given case the option "C” is more accurate to increase the value of the internal rate of return.

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