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Erickson s is considering a project with an initial cost of $623,000. The project will produce...

Erickson s is considering a project with an initial cost of $623,000. The project will produce cash inflows of $33,500 monthly for 21 months. What is the annual rate of return on this project? 11.57% 13.59% 17.47% 16.59% 18.44%

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Answer #1

Correct option is > 13.59%

             

Using financial calculator BA II Plus - Input details:

#

FV = Future value =

0

PV = Present Value =

-$623,000.00

N = Total number of periods = 21 =

21

PMT = Coupon Payment =

$33,500

CPT > I/Y = Rate or yield (Yield or Rate for 1 month) =

                     1.13

Convert Rate in Annual rate and in % form = I/Y*12 /100 = 1.13*12/100 =

13.59%

Alternatively, we can use excel function to calculate the annual rate:

=RATE(21, 33500, -623000)*12

= 13.59%

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