Question

A project is estimated to cost $454,730 and provide annual net cash flows of $74,000 for 10 years.

Present Value of an Annuity of $1 at
Compound Interest |
|||||

Year |
6% |
10% |
12% |
15% |
20% |

1 | 0.943 | 0.909 | 0.893 | 0.870 | 0.833 |

2 | 1.833 | 1.736 | 1.690 | 1.626 | 1.528 |

3 | 2.673 | 2.487 | 2.402 | 2.283 | 2.106 |

4 | 3.465 | 3.170 | 3.037 | 2.855 | 2.589 |

5 | 4.212 | 3.791 | 3.605 | 3.352 | 2.991 |

6 | 4.917 | 4.355 | 4.111 | 3.784 | 3.326 |

7 | 5.582 | 4.868 | 4.564 | 4.160 | 3.605 |

8 | 6.210 | 5.335 | 4.968 | 4.487 | 3.837 |

9 | 6.802 | 5.759 | 5.328 | 4.772 | 4.031 |

10 | 7.360 | 6.145 | 5.650 | 5.019 | 4.192 |

Determine the internal rate of return for this project, using
the **Present Value of an Annuity of $1 at Compound
Interest** table shown above.

%

Answer #1

Internal rate of return is the rate at which the discounted outflow is equal to discounted inflow of project.

The rate can be found out as follows:

Year |
Cash Flow |
Present value Annuity
Factor |
Discounted Cash
Flow |

0 (Immediately) | (454730) | 1 | (454730) |

1-10 | 74000 | "x" | 454730 |

Discounted inflows sholud be equal to $454730.

So 74000 (x) = 454730

x = 454730 / 74000

x = 6.145

So the present value annuity factor = 6.145

As per the annuity table the value of **6.145**
corresponds to $1 compunded at **10%** for 10
years.

**So the Internal Rate of Return = 10%**

A project is estimated to cost $191,850 and provide annual net
cash flows of $50,000 for eight years.
Present Value of an Annuity of $1 at
Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
1.833
1.736
1.690
1.626
1.528
3
2.673
2.487
2.402
2.283
2.106
4
3.465
3.170
3.037
2.855
2.589
5
4.212
3.791
3.605
3.352
2.991
6
4.917
4.355
4.111
3.784
3.326
7
5.582
4.868
4.564
4.160
3.605
8
6.210
5.335
4.968...

A project is estimated to cost $77,766 and provide annual net
cash flows of $26,000 for five years.
Present Value of an Annuity of $1 at
Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
1.833
1.736
1.690
1.626
1.528
3
2.673
2.487
2.402
2.283
2.106
4
3.465
3.170
3.037
2.855
2.589
5
4.212
3.791
3.605
3.353
2.991
6
4.917
4.355
4.111
3.785
3.326
7
5.582
4.868
4.564
4.160
3.605
8
6.210
5.335
4.968...

Net Present Value
A project has estimated annual net cash flows of $11,250 for
five years and is estimated to cost $46,950. Assume a minimum
acceptable rate of return of 15%. Use the Present Value of
an Annuity of $1 at Compound Interest table below.
Present Value of an Annuity of $1 at
Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
1.833
1.736
1.690
1.626
1.528
3
2.673
2.487
2.402
2.283
2.106
4...

Net Present Value A project has estimated annual net cash flows
of $8,750 for two years and is estimated to cost $44,726. Assume a
minimum acceptable rate of return of 12%. Use the Present Value of
an Annuity of $1 at Compound Interest table below. Present Value of
an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1
0.943 0.909 0.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 3
2.673 2.487 2.402 2.283 2.106 4...

A project has estimated annual net cash flows of $12,500 for ten
years and is estimated to cost $37,500. Assume a minimum acceptable
rate of return of 20%. Use the Present Value of an Annuity
of $1 at Compound Interest table below.
Present Value of an Annuity of $1 at
Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
1.833
1.736
1.690
1.626
1.528
3
2.673
2.487
2.402
2.283
2.106
4
3.465
3.170
3.037...

project has estimated annual net cash flows of $70,000 for four
years and is estimated to cost $190,000. Assume a minimum
acceptable rate of return of 10%. Use the The sum of the
present values of a series of equal “Net cash flows” to be received
at fixed time intervals.Present Value of an Annuity of $1 at
Compound Interest table below.
Present Value of an Annuity of $1 at
Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909...

Keystone Healthcare Corp. is proposing to spend $150,570 on a
10-year project that has estimated net cash flows of $30,000 for
each of the 10 years.
Present Value of an Annuity of $1 at
Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
1.833
1.736
1.690
1.626
1.528
3
2.673
2.487
2.402
2.283
2.106
4
3.465
3.170
3.037
2.855
2.589
5
4.212
3.791
3.605
3.352
2.991
6
4.917
4.355
4.111
3.784
3.326
7
5.582...

Buckeye Healthcare Corp. is proposing to spend $120,640 on a
seven-year project that has estimated net cash flows of $29,000 for
each of the seven years.
Present Value of an Annuity of $1 at
Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
1.833
1.736
1.690
1.626
1.528
3
2.673
2.487
2.402
2.283
2.106
4
3.465
3.170
3.037
2.855
2.589
5
4.212
3.791
3.605
3.352
2.991
6
4.917
4.355
4.111
3.784
3.326
7
5.582...

Buckeye Healthcare Corp. is proposing to spend $124,072 on a
nine-year project that has estimated net cash flows of $26,000 for
each of the nine years. Present Value of an Annuity of $1 at
Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870
0.833 2 1.833 1.736 1.690 1.626 1.528 3 2.673 2.487 2.402 2.283
2.106 4 3.465 3.170 3.037 2.855 2.589 5 4.212 3.791 3.605 3.352
2.991 6 4.917 4.355 4.111 3.784 3.326 7 5.582...

The internal rate of return method is used by Testerman
Construction Co. in analyzing a capital expenditure proposal that
involves an investment of $69,264 and annual net cash flows of
$13,000 for each of the nine years of its useful life.
Present Value of an Annuity of $1 at
Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
1.833
1.736
1.690
1.626
1.528
3
2.673
2.487
2.402
2.283
2.106
4
3.465
3.170
3.037
2.855...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 1 minute ago

asked 6 minutes ago

asked 8 minutes ago

asked 9 minutes ago

asked 9 minutes ago

asked 12 minutes ago

asked 27 minutes ago

asked 48 minutes ago

asked 52 minutes ago

asked 1 hour ago

asked 1 hour ago