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

Question

1. Viera Corporation is considering investing in a new facility. The estimated cost of the facility is $1,645,026. It will be used for 12 years, then sold for $717,200. The facility will generate annual cash inflows of $358,300 and will need new annual cash outflows of $150,500. The company has a required rate of return of 7%. Click here to view PV table.

Calculate the internal rate of return on this project. (Round answer to 0 decimal place, e.g. 125.)

2. Swift Oil Company is considering investing in a new oil well. It is expected that the oil well will increase annual revenues by $120,000 and will increase annual expenses by $68,000 including depreciation. The oil well will cost $468,000 and will have a $11,000 salvage value at the end of its 10-year useful life. Calculate the annual rate of return. (Round answer to 2 decimal places, e.g. 12.47.)

%

Explanation / Answer

Year intital Cashflow Annual Cashflow Pv factor- 10% PV cashflow 0 -1645026 1    (1,645,026) 1 to 12 207800 6.8137      1,415,885 12 717200 0.3186          228,522 NPV                (619) IRR is where the NPV is zero , IRR of the project is 9.9% Note: (358300-150500)= 207800 Increase in revenues    120,000 Increase in expenses      68,000 Net income      52,000 cost of oil well    468,000 Annual rate of return 11.11% (52000/468000)*100

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

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