Questions 1) The internal rate of return method is used to analyze a $831,500 ca
ID: 2462549 • Letter: Q
Question
Questions 1)
The internal rate of return method is used to analyze a $831,500 capital investment proposal with annual net cash flows of $250,000 for each of the six years of its useful life.
a. Determine a present value factor for an annuity of $1, which can be used in determining the internal rate of return. Carry your answer out to three decimal places.
Question 2)
The company's minimum desired rate of return for net present value analysis is 12%. The present value of $1 at compound interest of 12% is shown in the table below:
a. Determine the average rate of return on investment, giving effect to depreciation on the investment. Round your answer to two decimal places.
%
b. Determine the net present value.
$
Explanation / Answer
Q1 Initial Investment 831,500.00 Annual Net Cash Flows 250,000.00 a) Present value factor for an annuity of $1 = 831,500/250,000 3.3260 b)IRR is 20% Q2 a) Capita Expenditure 300,000.00 Total Profit for 5 Years 205,000.00 Average Profit (205000/5) 41,000.00 ARR = 41,000/300,000 = 13.67% b) Statemnet showing Cash flows Particulars Time PVf@12% Amount PV Cash Outflows - 1.00 (300,000.00) (300,000.00) PV of Cash outflows (300,000.00) Cash inflows 1.00 0.8930 120,000.00 107,160.00 Cash inflows 2.00 0.7970 110,000.00 87,670.00 Cash inflows 3.00 0.7120 105,000.00 74,760.00 Cash inflows 4.00 0.6360 90,000.00 57,240.00 Cash inflows 5.00 0.5670 80,000.00 45,360.00 PV of Cash Inflows 372,190.00 NPV 72,190.00
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.