**drop down 1: accepted or rejected drop down 2: greater than, equal to, or less

Question

**drop down 1: accepted or rejected

drop down 2: greater than, equal to, or less than

A firm with a cost of capital of 11 percent is considering a new computer-aided design (CAD) system that costs $882,000 and will produce net cash inflows of $367,194 at the end of each year for the next three years. (See Exhibit 19B-2) Required: 1. 1. The discount factor associated with the IRR for the project (round to three decimal places): 2. IRR for the CAD systempercent (round to the nearest whole percent) 2. IRR for the CAD system = 3. The CAD system should be Select your answer- because the IRR is -select your answer- the required rate of return

Explanation / Answer

1./

IRR IS THE RATE OF RETURN WHERE THE NPV BECOMES 0.

NPV = INITIAL CASH FLOW + ANNUITY CASH FLOW * PVIFA

0 = $882000 + $367194 * PVIFA X%, 3 PERIODS

PVIFA X%,3PERIODS= $882000 / $367194

PVIFA X%,3PERIODS = 2.402

DISCOUNTING FACTOR IS 2.402

2./

NOW PROF THE TABLE GIVEN ABOVE FIND 2.402 IN THE ROW OF 3 PERIOD , WHICH IS COMMING UNDER 12%

SO IRR = 12%

3./

THE CAD SYSTEM SHOULD BE ACCEPTED BECAUSE IRR IS GREATER THAN REQUIRED RATE OF RETURN.

Related Questions

Navigate

• Browse (All)
• Browse #
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.