Viera Corporation is considering investing in a new facility. The estimated cost
ID: 2490719 • Letter: V
Question
Viera Corporation is considering investing in a new facility. The estimated cost of the facility is $2,000,045. It will be used for 12 years, then sold for $716,870. The facility will generate annual cash inflows of $382,550 and will need new annual cash outflows of $154,990. The company has a required rate of return of 7%. Click here to view the factor table. (For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Calculate the internal rate of return. (Round answer to 0 decimal place, e.g. 15%.)
Please show work for how answer is achieved.
Explanation / Answer
Viera Corporation IRR calculation Year Investment Annual Cash Inflows Annual Cash outflows Salvage Net Cash flows PV factor @7.996% PV of Cash flows Year 0 (2,000,045) (2,000,045) 1.000 (2,000,045) Year 1 382,550 (154,990) 227,560 0.926 210,712 Year 2 382,550 (154,990) 227,560 0.857 195,110 Year 3 382,550 (154,990) 227,560 0.794 180,665 Year 4 382,550 (154,990) 227,560 0.735 167,288 Year 5 382,550 (154,990) 227,560 0.681 154,902 Year 6 382,550 (154,990) 227,560 0.630 143,433 Year 7 382,550 (154,990) 227,560 0.584 132,814 Year 8 382,550 (154,990) 227,560 0.540 122,980 Year 9 382,550 (154,990) 227,560 0.500 113,875 Year 10 382,550 (154,990) 227,560 0.463 105,443 Year 11 382,550 (154,990) 227,560 0.429 97,636 Year 12 382,550 (154,990) 716,870 944,430 0.397 375,213 NPV = 26 So the NPV is 26 at requires rate of return 7.996% So IRR is 7.996%
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