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An investment costs $84,753, and will return $15,000 a year for 10 years. The company’s required...

  1. An investment costs $84,753, and will return $15,000 a year for 10 years. The company’s required rate of return is 14%. Calculate the internal rate of return and indicate if the project is acceptable or not.
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Answer #1

We need to calculate internal rate of return(IRR)

Equating Present Worth = 0

Present Worth = Initial Cost + Annual Rate of return*PV (PV is Present value factorthe present value factor)

0 = -84753 + 15000*PV

PV = 84753/15000 = 56502

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We have given MARR = 14%....
Now considering this, check the table for PV of the annuity. Look for the 10th year IRR percentage which gives 56502.

If the IRR is < 14 % then we can say that project is not feasible. Otherwise, it is good to go.

Since you have not given the table I am updating the answer as both possibilities.

Check for row with value 10 as year and look for the percentage which represents the value 56502 and conclude as per above statement

hope this helps

feel free to comment and ask doubts

Thanks

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