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A small company purchased now for $27,255 will lose $995 each year for the first 4...

A small company purchased now for $27,255 will lose $995 each year for the first 4 years. An additional $6,333 invested in the company during the fourth year will result in a profit of $8,768 each year from the fifth to the fifteenth year. At the end of 15 years, the company can be sold for $32,348.   Calculate the ERR when є = 13%. Express your answer in percent rounded to two decimal places.

STEP BY STEP SOLUTION PLS (NO P/A)

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Answer #1

calculate the ERR when external reinvestment rate per period is 13%

Year Cash Inflow(A) Cash outflow (B) Present Value Factor(C) Present value of cash outflow (B*C) Future Value Factor(D) Future value of cash outflow(A*D)
0 27,225 1 27225
1 995 0.884956 880.5309
2 995 0.783147 779.2309
3 995 0.69305 689.5848
4 995 0.613319 610.2521
5 8768 3.39456 29763.5
6 8768 3.00404 26339.42
7 8768 2.658444 23309.24
8 8768 2.3526 20627.6
9 8768 2.08195 18254.54
10 8768 1.842435 16154.47
11 8768 1.63047 14295.96
12 8768 1.442897 12651.32
13 8768 1.2769 11195.86
14 8768 1.12 9820.16
15 32348 32348
Total 1,20,028 31,205 30,185 2,14,760
((214760/30185)^1/15)-1=13.96051%
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