Question

A corporation is considering investing in a new facility. Estimated cost of the facility is $1,645,026. It will be used for 12 years then sold for $717,200. The facility will generate annual cash inflows of $358,300 and will need new annual cash outflows of $150,500. The required rate of return is7 percent.

The internal rate of return is ?

Answer 1

Year	Cash flows	PVf @ 10%	Present value
0	-1645026	1	-1645026
1	207800	0.909091	188909.1
2	207800	0.826446	171735.5
3	207800	0.751315	156123.2
4	207800	0.683013	141930.2
5	207800	0.620921	129027.5
6	207800	0.564474	117297.7
7	207800	0.513158	106634.3
8	207800	0.466507	96940.23
9	207800	0.424098	88127.49
10	207800	0.385543	80115.9
11	207800	0.350494	72832.63
12	925000	0.318631	294733.5
Net Present value			-618
Hence, IRR of the project is 10% approx