Question

Calculate the discounted payback, net present value, and internal rate of return for the following cash flows. -60, -50, 6, 45, 60, 70, 60, 45, 20. Discount rate at 10%. Please show work for the internal rate of return calculation.

Answer #1

What are the Net Present Value and Internal Rate of Return for
the following cash flows - assuming a 3.5% discount rate?
Year 0: ($35,900)
Year 1: $20,750
Year 2: ($16,750)
Year 3: $32,100
Year 4: $12,525
Year 5: $18,220
Is the project profitable on a discounted basis? Is it something
we would want to pursue as an organization?

Average Rate of Return, Cash Payback Period, Net Present Value
Method for a Service Company
Spanish Peaks Railroad Inc. is considering acquiring equipment
at a cost of $295,000. The equipment has an estimated life of 10
years and no residual value. It is expected to provide yearly net
cash flows of $59,000. The company's minimum desired rate of return
for net present value analysis is 10%.
Present Value of an Annuity of $1 at
Compound Interest
Year
6%
10%
12%...

Average Rate of Return, Cash Payback Period, Net Present Value
Method for a Service Company
Spanish Peaks Railroad Inc. is considering acquiring equipment
at a cost of $1,250,000. The equipment has an estimated life of
eight years and no residual value. It is expected to provide yearly
net cash flows of $312,500. The company’s minimum desired rate of
return for net present value analysis is 12%.
Present Value of an Annuity of $1 at
Compound Interest
Year
6%
10%
12%...

Internal Rate of Return Method
The internal rate of return (IRR) method uses present value
concepts to compute the rate of return from a capital investment
proposal based on its expected net cash flows. This method,
sometimes called the time-adjusted rate of return method, starts
with the proposal's net cash flows and works backward to estimate
the proposal's expected rate of return.
Let's look at an example of internal rate of return calculation
with even cash flows.
A company has...

Average Rate of Return, Cash Payback Period, Net Present Value
Method for a Service Company
Spanish Peaks Railroad Inc. is considering acquiring equipment
at a cost of $210,000. The equipment has an estimated life of 10
years and no residual value. It is expected to provide yearly net
cash flows of $42,000. The company's minimum desired rate of return
for net present value analysis is 10%.
Present Value of an Annuity of $1 at
Compound Interest
Year
6%
10%
12%...

Average Rate of Return, Cash Payback Period, Net Present Value
Method for a Service Company
Spanish Peaks Railroad Inc. is considering acquiring equipment
at a cost of $144,000. The equipment has an estimated life of 10
years and no residual value. It is expected to provide yearly net
cash flows of $72,000. The company's minimum desired rate of return
for net present value analysis is 12%.
Present Value of an Annuity of $1 at
Compound Interest
Year
6%
10%
12%...

Average Rate of Return, Cash Payback Period, Net Present Value
Method
Bi-Coastal Railroad Inc. is considering acquiring equipment at a
cost of $220,000. The equipment has an estimated life of 10 years
and no residual value. It is expected to provide yearly net cash
flows of $44,000. The company’s minimum desired rate of return for
net present value analysis is 15%.
Present Value of an Annuity of $1 at
Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909...

Average Rate of Return, Cash Payback Period, Net Present Value
Method
Bi-Coastal Railroad Inc. is considering acquiring equipment at a
cost of $128,000. The equipment has an estimated life of 10 years
and no residual value. It is expected to provide yearly net cash
flows of $64,000. The company’s minimum desired rate of return for
net present value analysis is 15%.
Present Value of an Annuity of $1 at
Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909...

Payback, Accounting Rate of Return, Net Present Value, Internal
Rate of Return
Follow the format shown in Exhibit 12B.1 and Exhibit 12B.2 as
you complete the requirement below.
Blaylock Company wants to buy a numerically controlled (NC)
machine to be used in producing specially machined parts for
manufacturers of trenching machines. The outlay required is
$537,856. The NC equipment will last five years with no expected
salvage value. The expected after-tax cash flows associated with
the project follow:
Year
Cash...

Payback, Accounting Rate of Return, Net Present Value, Internal
Rate of Return
Follow the format shown in Exhibit 12B.1 and Exhibit 12B.2 as
you complete the requirements below.
Blaylock Company wants to buy a numerically controlled (NC)
machine to be used in producing specially machined parts for
manufacturers of tractors. The outlay required is $384,000. The NC
equipment will last 5 years with no expected salvage value. The
expected after-tax cash flows associated with the project
follow:
Year
Cash Revenues...

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