Question

aeamormation [The following information applies to the questions displayed below.] Park Co. is considering an investment that requires immediate payment of $20,957 and provides expected cash inflows of $6,900 annually for four years. Park Co. requires a 9% return on its investments 1-a. What is the internal rate of return? (PVof $1. EV of $1, PVA of $1, and EVA of $1) (Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.)

Answer 1

	CASH FLOW FROM THE PROJECT
	Years	Cash Flows
	0	-$20,957
	1	$6,900
	2	$6,900
	3	$6,900
	4	$6,900
	Total	$6,643
	IRR : IRR Means with a particular Percentage rate , At that point the present value become the zero
	CALCULATION OF THE IRR OF THE PROJECT
	First we calculate randomly present value with @ 12% discounting rate
	Years	Cash Flows	PVF @12%	Present Value
	0	-$20,957	1	-$20,957.00
	1	$6,900	0.8929	$6,161.01
	2	$6,900	0.7972	$5,500.68
	3	$6,900	0.7118	$4,911.42
	4	$6,900	0.6355	$4,384.95
		Net Present Value =		$1.06
	With PVF of 12% we are getting positive =			$1.06
	Secondly we calculate randomly present value @ 13 % discounting rate
	Years	Cash Flows	PVF @ 13%	Present Value
	0	-$20,957	1	-$20,957.00
	1	$6,900	0.8850	$6,106.50
	2	$6,900	0.7832	$5,404.08
	3	$6,900	0.6931	$4,782.39
	4	$6,900	0.6134	$4,232.46
		Net Present Value =		-$431.57
	With PVF of 13 % we are getting negative =			-431.57
	In the given case the pv with 12% is coming to postive means the present value is more
	then 12 % but with 13 % Present value cash flow become negative so the prese-nt value
	is between 12% and 13 %
	So the differecne in both % net present value is =			$1.06	-	-$431.57
	Total is become =			$432.63
	So , the difference % =			$1.06	"/"By	$432.63
	So , the difference % =			0.0025
	So, the IRR =			12.0025%
	Answer = IRR = (Round off)		12.00%