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Viera Corporation is considering investing in a new facility. The estimated cost

ID: 2490719 • Letter: V

Question

Viera Corporation is considering investing in a new facility. The estimated cost of the facility is $2,000,045. It will be used for 12 years, then sold for $716,870. The facility will generate annual cash inflows of $382,550 and will need new annual cash outflows of $154,990. The company has a required rate of return of 7%. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Calculate the internal rate of return. (Round answer to 0 decimal place, e.g. 15%.)

Please show work for how answer is achieved.

Explanation / Answer

Viera Corporation   IRR calculation Year Investment   Annual Cash Inflows Annual Cash outflows Salvage Net Cash flows PV factor @7.996% PV of Cash flows Year 0           (2,000,045)    (2,000,045)                 1.000      (2,000,045) Year 1            382,550         (154,990)          227,560                 0.926            210,712 Year 2            382,550         (154,990)          227,560                 0.857            195,110 Year 3            382,550         (154,990)          227,560                 0.794            180,665 Year 4            382,550         (154,990)          227,560                 0.735            167,288 Year 5            382,550         (154,990)          227,560                 0.681            154,902 Year 6            382,550         (154,990)          227,560                 0.630            143,433 Year 7            382,550         (154,990)          227,560                 0.584            132,814 Year 8            382,550         (154,990)          227,560                 0.540            122,980 Year 9            382,550         (154,990)          227,560                 0.500            113,875 Year 10            382,550         (154,990)          227,560                 0.463            105,443 Year 11            382,550         (154,990)          227,560                 0.429              97,636 Year 12            382,550         (154,990)        716,870          944,430                 0.397            375,213 NPV =                       26 So the NPV is 26 at requires rate of return 7.996%   So IRR is 7.996%