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Present Value of an Annuity of 1 Periods 8% 9% 10% 1 .926 .917 .909 2...

Present Value of an Annuity of 1

Periods 8% 9% 10%

1 .926 .917 .909

2 1.783 1.759 1.736

3 2.577 2.531 2.487

A company has a minimum required rate of return of 8% . it is considering investing in a project that costs $62,496 and is expected to generate cash inflows of $36,000 each year for two years. The approximate internal rate of return on this project is?

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Answer #1
NPV= PV OF CASH INFLOWS-PV OF CASH OUTFLOW
NPV= PV AF (8%,2)-PV OF CASH OUTFLOW
NPV= 36000*1.783-62496
NPV= 1692
NPV= PV OF CASH INFLOWS-PV OF CASH OUTFLOW
NPV= PV AF (9%,2)-PV OF CASH OUTFLOW
NPV= 36000*1.759-62496
NPV= 828
NPV= PV OF CASH INFLOWS-PV OF CASH OUTFLOW
NPV= PV AF (10%,2)-PV OF CASH OUTFLOW
NPV= 36000*1.736-62496
NPV= 0
AS AT ANNUITY FACTOR OF 10% FOR 2 YEARS, NPV IS ZERO, THEREFORE IRR IS 10%
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