Question 2 (Investment Decision Rules and Project Cash Flows) Consider a hypothetical economy that has NO tax. ABC Ltd. is considering investing in a 2-year project which is expected to generate the...

Question 2 (Investment Decision Rules and Project Cash Flows)

Consider a hypothetical economy that has NO tax.

ABC Ltd. is considering investing in a 2-year project which is expected to generate the following year-end cash flows: C1 = $110 million, C2 = $115 million. The yearly discount rate for the project is 10%. The initial cost of the project is $200 million.

Write down the numerical formula for computing the IRR of this project. What is the minimum IRR value that would make this project acceptable? Explain.