Question

can you detail explain how to get interest value using math, please

is from basic of Engineering Economy

IST COST REV - AOC Siu 550k 120 - 50 220k 40. 30 A 330k 80 - 20 60 66 (PIA, A1, 10) + 10 (PIA, Ai, 10) - 330 =0 from crtaces: si = 12.9%

Answer 1

Calculating the IRR of the incremental cash flow using trial and error method.

∆Initial cost = 330,000

∆Revenues / year = 60,000

∆Salvage Value = 10,000

Life = 10 years

Let the rate of interest is 12%. Calculat the PW at 12%

PW = -330,000 + 60,000 (P/A, 12%, 10) + 10,000 (P/F, 12%, 10)

PW = -330,000 + 60,000 (5.65022) + 10,000 (0.32197) =12,232.9

As the PW is positive, increase the rate of interest to get negative PW. Increase the rate of interest to 13% and calculate the PW.

PW = -330,000 + 60,000 (P/A, 13%, 10) + 10,000 (P/F, 13%, 10)

PW = -330,000 + 60,000 (5.42624) + 10,000 (0.29459) = -1,479.7

Using interpolation

IRR = 12% + [12,232.9 – 0 ÷ 12,232.9 – (-1,479.70)````]*1% = 12.89% or take 12.9%

The Internal rate of return will be 12.9%