Homeland Security Systems Solution: Show your work! Equipment $40,000 STEP 1: Av

Question

Homeland Security Systems Solution:
Show your work!





Equipment $40,000
STEP 1: Average the inflows






Year Cash Flow









1 $20,000









2 $18,000









3 $13,000
























STEP 2: Divide investment by annuity from step 1













































STEP 3: Find the rate that corresponds to the value in Step 2:
































STEP 4: Calculate the Present Value at 14%










Because the inflows are biased toward the early years, we will use the higher rate of 14%.

















Year Cash Flow PVIF @ 14% Present Value








1








2








3




















STEP 5: Calculate the Present Value at 15%










Since the NPV is slightly over $40,000, we need to try a higher rate. We will try 15%.





Year Cash Flow PVIF @ 15% Present Value








1








2






INTERPOLATION:
3


































PV @ 14%










PV @ 15%



































PV @ 14%










Cost


































IRR =



































b) With a cost of capital of 12 percent, should the machine be purchased?





Explain:
















Homeland Security Systems Solution:
Show your work!





Equipment $40,000
STEP 1: Average the inflows






Year Cash Flow









1 $20,000









2 $18,000









3 $13,000
























STEP 2: Divide investment by annuity from step 1













































STEP 3: Find the rate that corresponds to the value in Step 2:
































STEP 4: Calculate the Present Value at 14%










Because the inflows are biased toward the early years, we will use the higher rate of 14%.

















Year Cash Flow PVIF @ 14% Present Value








1








2








3




















STEP 5: Calculate the Present Value at 15%










Since the NPV is slightly over $40,000, we need to try a higher rate. We will try 15%.





Year Cash Flow PVIF @ 15% Present Value








1








2






INTERPOLATION:
3


































PV @ 14%










PV @ 15%



































PV @ 14%










Cost


































IRR =



































b) With a cost of capital of 12 percent, should the machine be purchased?





Explain:

Explanation / Answer

please reduce question size

Related Questions

Navigate

• Browse (All)
• Browse H
• Subjects

---

---

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