Question

A project has an initial cost of $400,000 and is estimated to produce cash flows of...

A project has an initial cost of $400,000 and is estimated to produce cash flows of $X at the end of each year for 8 years. If the internal rate of return for the project is 15.7% p.a. effective, calculate X (to the nearest dollar). Select one: a. $91201 b. $1754368 c. $98171 d. $85928

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Answer #1
Annuity payment= P/ [ [1- (1+r)-n ]/r ]
P= Present value 400,000.00
r= Rate of interest per period
Rate of interest per annum 15.7%
Payments per year 1.00
Rate of interest per period 15.700%
n= number of payments:
Number of years 8
Payments per year 1.00
number of payments 8
Annuity payment= 400000/ [ (1- (1+0.157)^-8)/0.157 ]
Annuity payment= 91,200.91

Answer is 91,201

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