Question

In answering question 13, "Which of the five equations shown would you use in computing the project's internal rate of return (IRR)?" please refer to the following five equations 1- 1+IRR - $9,880,000$1,320,000 EQUATION 1 $1,320,000 IRR 1-( 1+IRR. -$9,880,000 $1,320,000 $0 EQUATION 2: IRR 1-TRE 1+IRR EQUATION 3: $9,880,000 = $1,320,000 IRR 1- 1+IRR. -$1,320,000 $9,880,000 $0 EQUATION 3: IRR 1+IRR. -$9,880,000+ $1,320,000 -R) EQUATION 5: $9,880,000 IRR

Reggie Redbird, the CEO of South Elgin Elevators, Inc. believes that the firm could create additional value by adding escalators to its product mix. Machinery used in producing the escalators would cost $9,880,000. According to Redbird’s projections, the subsequent net cash flows the company would generate for the investors if it entered the escalator business would be $1,320,000 per year for 14 years. These are the only cash flows expected. The firm’s annual weighted average cost of capital for a project of this type is 8.2%. QUESTION: What is the NET PRESENT VALUE (NPV) of the escalator project and the IRR equation used for the project.

Answer 1

fue ,hlour fbus tolue Τυρλ 1 At the TRA cenh follous Shaw b of pibent ale efial pu.cof e pu.c giveh Putwe Conh intbos R01000 prerent tash out lous Culuulahry eucalion) be uned to equalion ItIOA esdlou tojad caluculation t Net preent valu PUA F 98,80/000 98,80/00 (83,4y) PUAF 13120(000 -14 8-149 NDV Scanned with CS CamScanner