Baber Corporation is planning an investment with the following characteristics: (Ignore income taxes in this problem.)...
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Baber Corporation is planning an investment with the following characteristics: (Ignore income taxes in this problem.) |
| Useful life | 8 years |
| Yearly net cash inflow | $70,000 |
| Salvage value | $0 |
| Internal rate of return | 17% |
| Required rate of return | 13% |
| Click here to view Exhibit 13B-2 to determine the appropriate discount factor(s) using tables. |
|
The initial cost of the equipment is closest to: (Round discount factor(s) to 3 decimal places) |
Homework Answers
Answer: $294,501.375
Explanation:
The internal rate of return is the rate of return at which the net present value of the project is zero.
Net present value = -Investment required + (Net annual cash inflow × Present value factor of an annuity for 8 years at 17%)
$0 = -Investment required + ($70,000 × 4.20716)
Investment required = $70,000 × 4.20716 = $294,501.375
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