A corporation is considering investing in a new facility. Estimated cost of the

Question

A corporation is considering investing in a new facility. Estimated cost of the facility is $1,645,026. It will be used for 12 years then sold for $717,200. The facility will generate annual cash inflows of $358,300 and will need new annual cash outflows of $150,500. The required rate of return is7 percent. The internal rate of return is ? A corporation is considering investing in a new facility. Estimated cost of the facility is $1,645,026. It will be used for 12 years then sold for $717,200. The facility will generate annual cash inflows of $358,300 and will need new annual cash outflows of $150,500. The required rate of return is7 percent. The internal rate of return is ? The internal rate of return is ?

Explanation / Answer

Year Cash flows PVf @ 10% Present value 0 -1645026 1 -1645026 1 207800 0.909091 188909.1 2 207800 0.826446 171735.5 3 207800 0.751315 156123.2 4 207800 0.683013 141930.2 5 207800 0.620921 129027.5 6 207800 0.564474 117297.7 7 207800 0.513158 106634.3 8 207800 0.466507 96940.23 9 207800 0.424098 88127.49 10 207800 0.385543 80115.9 11 207800 0.350494 72832.63 12 925000 0.318631 294733.5 Net Present value -618 Hence, IRR of the project is 10% approx

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