A dentist needs to buy a new teeth polishing machine for his dental clinic. He got...

Question

Question

Answer 1

Answer #1

The net present value of company A can be written as

$\large NPW_A = - 320,000 + 780,000(P/F,i\%,4)$

When we discount the cash flow at the internal rate of return the NPW = 0

$\large \implies - 320,000 + 780,000\times (1+i)^{-4} = 0$

$\large \implies 780,000\times (1+i)^{-4} = 320,000$

(1+1)-4 320,000 780,000

$\large \implies (1+i)^{-4} = 0.41025641$

$\large \implies (1+i)^{4} = \frac{1}{0.41025641}$

$\large \implies (1+i)^{4} = 2.4375$

$\large \implies 1+i= \sqrt[4]{2.4375}$

$\large \implies 1+i= 1.249499$

$\large \implies i= 1.249499 - 1$

$\large \implies i= 0.249499$

$\large \implies i= 24.95\%$

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Answer 2