A project is estimated to cost $248,400 and provide annual cash flows of $50,000
ID: 2471504 • Letter: A
Question
A project is estimated to cost $248,400 and provide annual cash flows of $50,000 for eight years. Determine the internal rate of return for this project, using the following table.
Year
6%
10%
12%
1
.943
.909
.893
2
1.833
1.736
1.690
3
2.673
2.487
2.402
4
3.465
3.170
3.037
5
4.212
3.791
3.605
6
4.917
4.355
4.111
7
5.582
4.868
4.564
8
6.210
5.335
4.968
9
6.802
5.759
5.328
10
7.360
6.145
5.650
Year
6%
10%
12%
1
.943
.909
.893
2
1.833
1.736
1.690
3
2.673
2.487
2.402
4
3.465
3.170
3.037
5
4.212
3.791
3.605
6
4.917
4.355
4.111
7
5.582
4.868
4.564
8
6.210
5.335
4.968
9
6.802
5.759
5.328
10
7.360
6.145
5.650
Explanation / Answer
at discount@6%
Cash flows = 50000 each for 8 years
Present value of annuity for 8 years is 6.210
Initial investment 248400
PV for 8 years is (310500)
NPV (62100)
at discount@10%
Present value of annuity for 8 years is 5.335
Initial investment 248400
PV for 8 years is (266750)
NPV (18350)
at discount@12%
Present value of annuity for 8 years is 4.968
Initial investment 248400
PV for 8 year is (248400)
NPV 0
IRR is 12%. IRR means cash inflows equals to cash outflows.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.