(TCO 9) Thurman Munster, the owner of Adams Family RVs, is considering the addit
ID: 2366821 • Letter: #
Question
(TCO 9) Thurman Munster, the owner of Adams Family RVs, is considering the addition of a service center his lot. The building and equipment are estimated to cost $1,100,000 and both the building and equipment will be depreciated over 10 years using the straight-line method. The building and equipment have zero estimated residual value at the end of 10 years. MunsterExplanation / Answer
DCF0 = -1100000/(1+0.12)^0 = -1100000 DCF1 = 102000/(1+0.12)^1 = 91071.43 DCF2 = 102000/(1+0.12)^2 = 81313.78 DCF3 = 102000/(1+0.12)^3 = 72601.59 DCF4 = 102000/(1+0.12)^4 = 64822.84 DCF5 = 102000/(1+0.12)^5 = 57877.54 DCF6 = 102000/(1+0.12)^6 = 51676.37 DCF7 = 102000/(1+0.12)^7 = 46139.62 DCF8 = 102000/(1+0.12)^8 = 41196.09 DCF9 = 102000/(1+0.12)^9 = 36782.22 DCF10 = 102000/(1+0.12)^10 = 32841.27 NPV = -523677.25 ================================= IRR = -1.35% f(x) = -1100000(1+i)^0 +102000(1+i)^-1 +102000(1+i)^-2 +102000(1+i)^-3 +102000(1+i)^-4 +102000(1+i)^-5 +102000(1+i)^-6 +102000(1+i)^-7 +102000(1+i)^-8 +102000(1+i)^-9 +102000(1+i)^-10 f'(x) = -102000(1+i)^-2 -204000(1+i)^-3 -306000(1+i)^-4 -408000(1+i)^-5 -510000(1+i)^-6 -612000(1+i)^-7 -714000(1+i)^-8 -816000(1+i)^-9 -918000(1+i)^-10 -1020000(1+i)^-11 x0 = 0.1 f(x0) = -473254.1552 f'(x0) = -2692420.6731 x1 = 0.1 - -473254.1552/-2692420.6731 = -0.0757727386158 Error Bound = -0.0757727386158 - 0.1 = 0.175773 > 0.000001 x1 = -0.0757727386158 f(x1) = 513922.1247 f'(x1) = -10727816.1489 x2 = -0.0757727386158 - 513922.1247/-10727816.1489 = -0.0278671707393 Error Bound = -0.0278671707393 - -0.0757727386158 = 0.047906 > 0.000001 x2 = -0.0278671707393 f(x2) = 95471.8589 f'(x2) = -7049928.8782 x3 = -0.0278671707393 - 95471.8589/-7049928.8782 = -0.0143249264813 Error Bound = -0.0143249264813 - -0.0278671707393 = 0.013542 > 0.000001 x3 = -0.0143249264813 f(x3) = 5190.9012 f'(x3) = -6300312.0919 x4 = -0.0143249264813 - 5190.9012/-6300312.0919 = -0.0135010147313 Error Bound = -0.0135010147313 - -0.0143249264813 = 0.000824 > 0.000001 x4 = -0.0135010147313 f(x4) = 17.494 f'(x4) = -6257904.1977 x5 = -0.0135010147313 - 17.494/-6257904.1977 = -0.0134982192189 Error Bound = -0.0134982192189 - -0.0135010147313 = 3.0E-6 > 0.000001 x5 = -0.0134982192189 f(x5) = 0.0002 f'(x5) = -6257760.8996 x6 = -0.0134982192189 - 0.0002/-6257760.8996 = -0.0134982191869 Error Bound = -0.0134982191869 - -0.0134982192189 = 0 < 0.000001 IRR = x6 = -0.0134982191869 or -1.35% =======================Related Questions
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