i need help with caculating the IRR This Question: 1 pt 3 of 3 This Quiz: 3 pts
ID: 2397323 • Letter: I
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i need help with caculating the IRR
This Question: 1 pt 3 of 3 This Quiz: 3 pts possible Water City is considering purchasing a water park in Atlanta, Georgia, for $1,850,000. The new facility will generate annual net cash inflows of $460,000 for eight years Engineers estimate that the facility will remain useful for eight years and have no residual value. The company uses straight-line depreciation, and its stockholders demand an annual return of 12% on investments of this nature (Click the icon to view the Present Value of $1 table.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) (Click the icon to view Future Value of $1 table) (Click the icon to view Future Value of Ordinary Annuity of $1 table.) Read the requirements Next, determine the formula and calculate the accounting rate of return (ARR). (Round the percentage to the nearest tenth percent. X.X%.) Average annual operating income 228750 Average amount invested ARR 925000 247% Calculate the net present value (NPV). (Enter any factor amounts to three decimal places, X.XXX.) Annuity PV Factor (1-12%, n-8) 0.404 Net Cash Present Years Inflow Value 185,840 (1,850,000) (1664160) 1-8 Present value of annuity 460,000 0 Investment Net present value of the investment The IRR (internal rate of return) is between 18-20% Finally, determine the formula and calculate the profitability index. (Round your answer to two decimal places, X.XX.) Present value of net cash inflows / Initial investment Profitability index Choose from any list or enter any number in the input fields and then continue to the next question Save for LaterExplanation / Answer
The Internal Rate of Return [IRR]
Internal Rate of Return Factor = Net Initial Investment / Annual Cash Flow
= $1,850,000 / $460,000
= 4.021739
From the Present Value Annuity Factor Table [PVIFA], We can find that the discount rate (IRR) corresponding to the factor of 4.021739 for 8 Years is equals to 18.45%.
“Therefore, The IRR [Internal Rate of Return] of the project is between 18%-20%”
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