The Hudson Corporation makes an investment of $64,530 that provides the followin

Question

The Hudson Corporation makes an investment of $64,530 that provides the following cash flow:
Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

  
a. What is the net present value at a discount rate of 8 percent? (Do not round intermediate calculations and round your answer to 2 decimal places.)
  

b. What is the internal rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
  

Explanation / Answer

a.Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=31000/1.08+31000/1.08^2+19000/1.08^3

=$70364.02

NPV=Present value of inflows-Present value of outflows

=$70364.02-$64530

=$5834.02(Approx).

2.

Let irr be x%
At irr,present value of inflows=present value of outflows.

64530=31000/1.0x+31000/1.0x^2+19000/1.0x^3

Hence x=irr=13.34%(Approx).

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.