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ID: 2372178 • Letter: #

Question

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(A) An investment of $10,000 has an investment/inflow ratio of

6.2 and a useful life of 12 years. What are the annual cash inflow

and internal rate of return?

(B) The internal rate of return for an investment expected to yield

an a nnual cash inflow of $2,000 is 14 percent. How much is the

investment if the investment/inflow ratio is 6.14?

expected to produce annual cash inflow of $5,000 a year for seven

years if its required rate of return is 16 percent?

(D) How much investment per dollar of expected annual operating

savings can a company afford if the investment has an expected life

of eight years and its required rate of return is 14

percent?

A)Ã‚ The investment/inflow ratio = $10,000 Ãƒ · annual cash inflow = 6.2, so if the investment is $10,000, theÃ‚

annual cash inflow is $10,000 Ãƒ · 6.2, or $1,613.Ã‚

An investment/inflow ratio of 6.2, for 12 years, from Table B is approximately a 12% internal rate of return

Investment = 6.14*2000 =$12280

expected to produce annual cash inflow of $5,000 a year for seven

years if its required rate of return is 16 percent?

maximum investment = 5,000/1.16 + 5,000/1.16^2 .....5,000/1.16^7 =$20,192.83

(D) How much investment per dollar of expected annual operating

savings can a company afford if the investment has an expected life

of eight years and its required rate of return is 14

percent?

Investmnet = saving/1.14 + saving/1.14^2 + saving/1.14^3..... saving/1.14^8

Investment/saving = 4.64

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