Internal Rate of Return Method The Riverton Company, a ski resort, recently anno

Question

Internal Rate of Return Method The Riverton Company, a ski resort, recently announced a $571,429 expansion to lodging properties, lifts, and terrain.

Assume that this investment is estimated to produce $139,000 in equal annual cash flows for each of the first six years of the project life. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20%

1 0.943 0.909 0.893 0.870 0.833

2 1.833 1.736 1.690 1.626 1.528

3 2.673 2.487 2.402 2.283 2.106

4 3.465 3.170 3.037 2.855 2.589

5 4.212 3.791 3.605 3.352 2.991

6 4.917 4.355 4.111 3.784 3.326

7 5.582 4.868 4.564 4.160 3.605

8 6.210 5.335 4.968 4.487 3.837

9 6.802 5.759 5.328 4.772 4.031

10 7.360 6.145 5.650 5.019 4.192

Determine the expected internal rate of return of this project for six years, using the present value of an annuity of $1 table above. If required, round your final answer to the nearest whole percent. %

Explanation / Answer

Year Cashflows 0 -5,71,429 1 1,39,000 2 1,39,000 3 1,39,000 4 1,39,000 5 1,39,000 6 1,39,000 IRR 12%

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