Required information The following information applies to the questions displaye

Question

Required information The following information applies to the questions displayed below. Park Co. is considering an investment that requires immediate payment of $28,065 and provides expected cash inflows of $8100 annually for four years. Park Co. requires a 5% return on its investments. 1-a. What is the internal rate of return? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.) 1-b. Based on its internal rate of return, should Park Co. make the investment? Yes O No

Explanation / Answer

Let irr be x%
At irr,present value of inflows=present value of outflows.

28065=8100/1.0x+8100/1.0x^2+8100/1.0x^3+8100/1.0x^4

28065/8100=1/1.0x+1/1.0x^2+1/1.0x^3+1/1.0x^4

1/1.0x+1/1.0x^2+1/1.0x^3+1/1.0x^4=3.4648

Hence x=IRR=6%(Approx)

Hence since IRR is greater than the required return;the investment should be made.

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