Homework Answers
MARR = 12%
Net annual revenue = 300000 - 100000 = 200000
1. Let ROR be I%, then
- 1200000 + 200000 * (P/A, I%,10) + 400000 * (P/F, I%,10) = 0
dividing by 200000
- 6 + (P/A, I%,10) + 2 * (P/F, I%,10) = 0
(P/A, I%,10) + 2 * (P/F, I%,10) = 6
After this we need to use trail and error method and interpolation to find ROR
2 & 3. Using RATE & IRR function in Excel
| Year | Investment | Revenue | Cost | Salvage value | Net Cash Flow |
| 0 | -1200000 | -1200000 | |||
| 1 | 300000 | -100000 | 200000 | ||
| 2 | 300000 | -100000 | 200000 | ||
| 3 | 300000 | -100000 | 200000 | ||
| 4 | 300000 | -100000 | 200000 | ||
| 5 | 300000 | -100000 | 200000 | ||
| 6 | 300000 | -100000 | 200000 | ||
| 7 | 300000 | -100000 | 200000 | ||
| 8 | 300000 | -100000 | 200000 | ||
| 9 | 300000 | -100000 | 200000 | ||
| 10 | 300000 | -100000 | 400000 | 600000 | |
| ROR Using RATE Function | 13.06% | ||||
| ROR Using IRR Function | 13.06% |
As ROR using RATE and IRR function is greater than MARR (12%), therefore project is acceptable
Showing formula in Excel
| Year | Investment | Revenue | Cost | Salvage value | Net Cash Flow |
| 0 | -1200000 | =I12+J12+K12+L12 | |||
| 1 | 300000 | -100000 | =I13+J13+K13+L13 | ||
| 2 | 300000 | -100000 | =I14+J14+K14+L14 | ||
| 3 | 300000 | -100000 | =I15+J15+K15+L15 | ||
| 4 | 300000 | -100000 | =I16+J16+K16+L16 | ||
| 5 | 300000 | -100000 | =I17+J17+K17+L17 | ||
| 6 | 300000 | -100000 | =I18+J18+K18+L18 | ||
| 7 | 300000 | -100000 | =I19+J19+K19+L19 | ||
| 8 | 300000 | -100000 | =I20+J20+K20+L20 | ||
| 9 | 300000 | -100000 | =I21+J21+K21+L21 | ||
| 10 | 300000 | -100000 | 400000 | =I22+J22+K22+L22 | |
| ROR Using RATE Function | =RATE(10,200000,-1200000,400000) | ||||
| ROR Using IRR Function | =IRR(M12:M22) |
Add Answer to:
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Please show all work. Thank you!
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1. Find an internal rate of
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2. Should you use the IRR you calculated in the previous
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Please show all work. Thank you!
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#14
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