Question

To use the IRR method, it is important to have the following information: O The initial cost and annual savings (net cash flow). O The initial cost of the investment, the useful life and the annual cost savings (net cash flow) and the minimum required rate of return for the project The initial cost and useful life. Previous Next Activity Details Task: View this topic MacBook Air

Answer 1

Question 1:

Option 2 is the correct answer about IRR.

For Computing IRR, we definitely require initial cost and yearly cash flows and life of project and minimum expected rate of return from the project.

At IRR, present value of cash inflows are equal to present value of cash outflows.

Question 2:

Option 1 is the correct answer. That is when we adding additional space we could about whether it could increase the capacity, and produce income.

Question 3:

Option 2 is the correct answer. That is $35,000.00

Given, payback period = 7 years

Initial purchase price = payback period * net cash flows

                                = 7 years * $5000.00     = $35,000.00

Question 4:

Option 2 is the correct answer.

Present value of $1500 = $1500*PVF(5%,3years)   = $1500 * 0.8638 = $1295.76

So, $1295.76 is more than $1000.00. Then better to take $1500 after 3 years.