Question

11. The Ogden Corporation makes an Investment of $25,000, which yields the following cash flows: Year Cash Flow 1 $5,000 2 $5,000 3 $8,000 4 $9,000 5 $10,000 a. What is the present value with a 9 percent discount rate (cost of capita) b. What is the internal rate of return (IRR)? c. In this problem would you make the same decision in parts a and b? pls help me with formula.

Answer 1

Solution a:

Computation of NPV
Particulars	Period	PV Factor	Amount	Present Value
Cash outflows:
Cost of Equipment	0	1	$25,000	$25,000
Present Value of Cash outflows (A)				$25,000
Cash Inflows
Year 1	1	0.917	$5,000	$4,587
Year 2	2	0.842	$5,000	$4,208
Year 3	3	0.772	$8,000	$6,177
Year 4	4	0.708	$9,000	$6,376
Year 5	5	0.650	$10,000	$6,499
Present Value of Cash Inflows (B)				$27,848
Net Present Value (NPV) (B-A)				$2,848

Solution b:

Computation of IRR
Period	Cash Flows	IRR
0	-$25,000.00	12.76%
1	$5,000.00
2	$5,000.00
3	$8,000.00
4	$9,000.00
5	$10,000.00

Solution c:

Yes, i will make same decision in parts a and b as investment should be accepted.