Wayne Company is considering a long-term investment project called ZIP. ZIP will

Question

Wayne Company is considering a long-term investment project called ZIP. ZIP will require an investment of $131,236. It will have a useful life of 4 years and no salvage value. Annual cash inflows would increase by $89,800, and annual cash outflows would increase by $46,200. The company’s required rate of return is 12%. Click here to view PV table.

Calculate the internal rate of return on this project. (Round answers to 0 decimal places, e.g. 15%.)

Determine whether this project should be accepted?

Explanation / Answer

IRR of the project= Net annual cash flow=( 89800-46200)= 43600 At IRR, PV of Outflows= PV of Inflows 131236=43600/(1+r)+43600/(1+r)^2+43600/(1+r)^3+43600/(1+r)^4 Solving For r in an online Equation Solver, we get, r= 0.12431 ie. 12.43% As the required rate of return is 12% and The return generated from this project is 12.43% The project  can be accepted. Internal rate of return on this project is between1 2  % and 12.5 %.

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