Question

Riverbed Corporation is considering investing in a new facility. The estimated cost of the facility is $1,801,223. It will be used for 12 years, then sold for $716,800. The facility will generate annual cash inflows of $375,600 and will need new annual cash outflows of $159,700. 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 places, e.g. 125.) Internal rate of return is Should the project be accepted? be accepted The project

Answer 1

IRR	=	9%
The project should be accepted
(As IRR is more than required rate of return)
Workings:
Computation of IRR of Project:
Annual cash Inflow	=	Depreciation + Annual Income
	=	$375600 - $159700
	=	$     2,15,900
	Year	Value Flows
	0	$ -18,01,223
	1	$     2,15,900
	2	$     2,15,900
	3	$     2,15,900
	4	$     2,15,900
	5	$     2,15,900
	6	$     2,15,900
	7	$     2,15,900
	8	$     2,15,900
	9	$     2,15,900
	10	$     2,15,900
	11	$     2,15,900
	12	$     9,32,700
IRR	=	9%