Assume Research In Motion invested $834 million to expand its manufacturing capa

Question

Assume Research In Motion invested $834 million to expand its manufacturing capacity. Assume that these assets have a seven-year life, and that Research In Motion requires a 12% internal rate of return on these assets.
Required 1. What is the amount of annual cash flows that Research In Motion must earn from these projects to have a 12% internal rate of return? (Hint: Identify the seven-period, 12% factor from the present value of an annuity table, and then divide $834 million by this factor to get the annual cash flows necessary.) please answer correctly and go step by step if possible! Assume Research In Motion invested $834 million to expand its manufacturing capacity. Assume that these assets have a seven-year life, and that Research In Motion requires a 12% internal rate of return on these assets.
Required 1. What is the amount of annual cash flows that Research In Motion must earn from these projects to have a 12% internal rate of return? (Hint: Identify the seven-period, 12% factor from the present value of an annuity table, and then divide $834 million by this factor to get the annual cash flows necessary.) please answer correctly and go step by step if possible!

Explanation / Answer

Hi,

Please find the answer as follows:

At IRR, NPV = 0. Therefore, the value of initial investment should be equal to the sum of cash inflows earned over the life of the project.

To calculate the Annual Cash Flow, we can use the following equation.

834 = PVIFA (12%, 7)*Cash Flow Each Year (Since it is a constant stream of cash flows)

834 = 4.5638*Cash Flows Each Year

Solving the equation we would get

Cash Flow Each Year = 834/4.5638 = 182.7425 or 182.74 million.

Answer is 182.74 million.

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

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