Question

A) an investment of $500,000 generates annual income of $50,000 for the next 10years with a salvage value of $450,000. at MARR=10%, is this a good investment.

B) Determine the IRR.

Answer #1

**ANSWER:**

**We need to find the present worth of the project
.**

**i =10% and n = 10 years**

**pw = initial investment + annual income(p/a,i,n) +
salvage value(p/f,i,n)**

**pw = -500,000 + 50,000(p/a,10%,10) +
450,000(p/f,10%,10)**

**pw = -500,000 + 50,000 * 6.145 + 450,000 *
0.3855**

**pw = -500,000 + 307,250 + 173,475**

**pw = -500,000 + 480,725**

**pw = -19,275**

**since the present worth is negative it is not a good
investment.**

*B) IRR:*

**In order to find the irr we will have to equate the
pw to zero.**

**pw = initial investment + annual income(p/a,i,n) +
salvage value(p/f,i,n)**

**0 = -500,000 + 50,000(p/a,i,10) +
450,000(p/f,i,10)**

**500,000 = 50,000(p/a,i,10) +
450,000(p/f,i,10)**

**solving via trial and error we get that i is between
9% and 10% and solving further we get that i is
9.35%**

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