Question

Question 3 --/20 View Policies Current Attempt in Progress Viera Corporation is considering investing in a new facility. The estimated cost of the facility is $1,740,777. It will be used for 12 years, then sold for $710,400. The facility will generate annual cash inflows of $372,400 and will need new annual cash outflows of $150,200. 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. 13%.) Internal rate of return is Whether the project should be accepted. The project 4 be accepted.

Answer 1

Please find below table useful to compute desired results: -

A B i Estimated Cost 1740777 2 Tenure 12 3 Salvage Value 710400 4 Annual Cash inflows 372400 5 Annual Cash outflows 150200 6 Rate of Return =7/100 7 Period Discounting Factor Cashflows PV of Cashflows 80 =1/(1+SBS6 A8 =-B1 =B8*C8 9 1 1=1/(1+SBS6 A9 =$B$4-$B$5 =B9*C9 10 2 =1/(1+SBS6 A10 =SBS4-SB$5 =B10*C10 113 =1/(1+$B$6 A11 =$B$4-SB$5 =B11*C11 124 =1/(1+SBS6 A12 =SBS4-SBS5 =B12*C12 13 5 =1/(1+SBS6A13 =SBS4-SBS5 =B13*C13 14 6 =1/(1+SBS64A14 =SBS4-SB$5 =B14*C14 15 7 1=1/(1+SBS6 A15 =$B$4-$B$5 =B15*C15 16 8 =1/(1+SBS6) A16 =$B$4-SBS5 =B16*C16 =1/(1+SBS6A17 =SBS4-SBS5 =B17*C17 =1/(1+SBS6-A18 =$B$4-SB$5 =B18*C18 =1/(1+SBS6 A19 =SBS4-SBS5 =B19*C19 20 12 =1/(1+SBS6) A20 =$B$4-SB$5+B3 =B20*C20 NPV =SUMD8-D20) IRR =IRR(CS:C20) 18 19 11

End results would be as follows:-

A 12 0 i Estimated Cost S 1.740.777.00 2 Tenure 3 Salvage Value S 710,400.00 4 Annual Cash inflows S 372.400.00 5 Annual Cash outflows $ 150.200.00 6 Rate of Return 7% 7 Period Discounting Factor Cashflows PV of Cashflows 1 $(1,740,777.00) $(1,740.777.00) 0.9346 S 222,200.00 $ 207,663.55 0.8734 S 222,200.00 $ 194,078.09 0.8163 S 222,200.00 $ 181,381.39 0.7629 S 222,200.00 $ 169,515.32 0.7130 S 222.200.00 $ 158,425.53 0.6663 S 222,200.00 $ 148,061.24 0.6227 S 222,200.00 $ 138,374.99 0.5820 S 222.200.00 $ 129,322.42 0.5439 S 222,200.00 $ 120,862.08 0.5083 S 222,200.00 $ 112,955.21 111 0.4751 S 222,200.00 $ 105,565.62 0.4440 S 932.600.00 S 414,085.55 NPV $ 339,513.99 IRR 10.00% 12

The project will be accepted one because of Positive NPV and second because of IRR is greater than required rate of return