Question

Ritter Razors is considering an equipment investment that will cost $910,000. Projected net cash inflows over the​ equipment's three-year life are as​ follows: Year​ 1: $484,000​; Year​ 2: $382,000​; and Year​ 3: $292,000. Ritter wants to know the​ equipment's IRR.

Requirement

Use trial and error to find the IRR within a​ 2% range.

​(Hint​:

Use

RitterRitter​'s

hurdle rate of

1212​%

to begin the​ trial-and-error process.) Use a business calculator or spreadsheet to compute the exact IRR.

Begin by calculating the NPV at three​ rates: 12​%, 14​%, and 16​%.

​(Round your answers to the nearest whole dollar. Use parentheses or a minus sign for negative net present​ values.)

The NPV at 12% is $

.

The NPV at 14% is $

.

The NPV at 16% is $

.

The IRR is somewhere between

▼

12% and 14%

14% and 16%

​, but closer to

▼

14%

12%

16%

.

​(Round your answer to two decimal​ places.)

The exact IRR using a business calculator or spreadsheet is

%.

Answer 1

Years	Net Cash Flows	PV of Cash Flows at 12%	PV of Cash Flows at 14%	PV of Cash Flows at 16%
1	484000	$4,32,143	$4,24,561	$4,17,241
2	382000	$3,04,528	$2,93,937	$2,83,888
3	292000	$2,07,840	$1,97,092	$1,87,072
	Total of PV of CashFlows	$9,44,511	$9,15,590	$8,88,202
	Less:Investment	$9,10,000	$9,10,000	$9,10,000
	NPV	$34,511	$5,590	-$21,798
	Since at IRR, the PV of CashFlows is equal to Initial Investment. So the IRR must be between 14% and 16% and that is closer to 14%
	As per financial calulator the exact IRR is 14.40%