A person is considering an investment situation that requires the investment of $150,000 at time zero and $200,000 at year one to generate profits of $95,000 per year starting at year two and running through year 10 (a 9 year profit period) with projected salvage value of $150,000 at the end of year 10. Determine the compound interest rate of return for these end of period funds. Draw the cumulative cash position diagram for the time zero through end of year 10 at the project rate of return.
Calculation of compound Rate of Interest 

Years 
1 
2 
3 
4 
5 
6 
7 
8 
9 
10 
Total 

a. 
Outflow 
150000 
200000 

b. 
Inflow 
95000 
95000 
95000 
95000 
95000 
95000 
95000 
95000 
95000 

c. 
Net Inflow/(outflow) [a+b] 
150000 
105000 
95000 
95000 
95000 
95000 
95000 
95000 
95000 
95000 

d. 
IRR (Guess 27.47%) 
0.7845 
0.615438 
0.48281 
0.378763 
0.297139 
0.233105 
0.182871 
0.143462 
0.112545 
0.08829 

e. 
PV [c*d] 
117675 
64620.9 
45866.93 
35982.53 
28228.23 
22145 
17372.72 
13628.87 
10691.82 
8387.72 
8.11 
f. 
Cumulative Cash Position 
150000 
255000 
160000 
65000 
30000 
125000 
220000 
315000 
410000 
505000 

Answer (i) Compound Rate of Intrest = 27.47% 

Answer (ii) Cumulative charts are shown as follow: 
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