Question

The following data pertain to an investment project (Ignore income taxes.): Investment required Annual savings Life of the project $34,055 $ 5,000 15 years Click here to view Exhibit 7B-1 and Exhibit 7B-2, to determine the appropriate discount factor(s) using the tables provided. The internal rate of return is closest to: Multiple Choice

Answer 1

from F all cash flows Thus anternal Rate of Return &s a discounting late in makes the net prosent value (NPD of all cash flows a project to zero. Thus it fe the empented return that will be earned from the project At may also be calculated by using this formula - Cashflow anitial Investment (1tr 8000 5000 34088 NPY (1.1215 (1+0.1218 - 34,055 34,088 34080 INPr = 0 (IRRE 12 / 0) CS Scanned with CamScanner

Cotal cash out flow = 34,055 Annual cash inflow $8,000 life of the project = 18 years Conternal Rate chi Retuon factot - Ner Initial Investment Internal Rate of Rafe Return factor a ner Annual Cash in How - 34,055 9000 IRR factod a $6.811 After computing Internal Rate of Retuon factor the near Step is to locate the discount factor in present value of annuity table. Here the life of the project is Isyears, so we have to found Rate of Return at is periods. The factor $6.811 should be seen in 15th year and It is at 1201 :. Internal Rate of Retuon 121 Annyed Cashflow NPV z 6000 xPvAH (127ad6yns) -Initial and = 1000 x 6.811 - 34055 7 34001 - 34000 20 NPV Scanned with CamScanner