Question

Your firm is considering introducing a new product for which returns are expected to be as...

Your firm is considering introducing a new product for which returns are expected to be as follows:

Year 1 to Year 3 (Inclusive): $2,000 per year

Year 4 to Year 8 (Inclusive): $5,000 per year

Year 9 to Year12 (Inclusive): $3,000 per year

The introduction of the product requires an immediate outlay (expenditure) of $15,000 for equipment estimated to have a salvage value of $2,000 after 12 years. Compute the Internal Rate of Return (IRR) for the launch of this product. Write your answer to two decimal places.

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Answer #1

In CF12, we have adjusted salvage value

We will use the financial calculator to compute the IRR

CFo = -15,000

CF1 = 2000 then F01 = 3

CF2 = 5000 then F02 = 5

CF3 = 3000 then F03 = 3

CF4 = 5000

Then compute IRR

IRR = 19.84%

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