Determine if the following cash flow is or isn\'t viable. Using IRR and ERR meth

Question

Determine if the following cash flow is or isn't viable. Using IRR and ERR methods The MARR is 10 percent a. IRR ? b. I. RR? Bond Value 2. A bond has a fate value of $1, 000. it redeemable in eight years, and pays imerest of $100 at the end of eacti of the eight years. If the bond can be purchased for $981, what is the rate of return if the bond is held until maturity? Payback 3. If you invest $5. 123 in a venture, you will receive $1. 110 per sear for the next 20 years. Assuming 10% interest, What is the discounted payback period for your investment? Capital Recovery-Perpetual 4 With interest at 8%compounded annually. how much money required today to provide a perpetual income of $14, 316 per year? Geometric Series 5. A new machine was bought for $9, 000 with a lile ol Hv stars ami no salvage value Its operating cost begins in year one in $7, 000 and will increase by 5% every year, If the MARR = 12% what was the annual equivalent cost of the machine? Simple Interest 6. If you borrow $3, 000 at 6% simple interest per year for seven sears, how much will you have to repay at the end of seven years? Compound Interest 7. Your monthly mortgage pavement is $ 1, 500 If you have a 30 year loan with a fixed interest of 6% compound monthly how much did sou borrow Irom the hank to purhase >our house" Select the closer answer. 8. If you borrow $5, 000 to boy a car at 12* >> compounded ninthly. lo be repaid over the nest four years, what is your monthly payment? 9. Every year you deposit $2, 000 into an account that aim interest late per >eat What w. 11 be the balance of the account immediately after 30 deposit ? 10. If you invest $7, 000 at 12% compounded continuously, how much world it be worth in three years?

Explanation / Answer

IRR= Lower rate + [Lower rate NPV / (Lower rate NPV - Higher rate NPV)] * Difference in rate

= 10 + [2907.868 / (2907.868 - (-669.19))] * 4

= 13.25%

ERR= Lower rate of discount + (Difference in rate) * (Positive NPV / absolute difference between positive and negative NPVs)

result will be same as above. reson of this is that Economicrate of return and internal rate of return are almost same thing.

time 0 1 2 3 4 5 outflow -35000 20000 20000 20000 20000 20000 inflow 0 30000 30000 30000 30000 30000 net -35000 10000 10000 10000 10000 10000 DF at 10% 1 0.9091 0.8264 0.7513 0.6830 0.6209 PV -35000 9090.909 8264.463 7513.148 6830.135 6209.213 NPV 2907.868 DF at 14% 1 0.8772 0.7695 0.6750 0.5921 0.5194 PV -35000 8771.93 7694.675 6749.715 5920.803 5193.687 NPV -669.19

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