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https//edugen.wileyplus.com/edugen/lt/main.uni 311 Patnots Sports Radio H z o DCorinks D Google Docs y, y(140 Twitter Return to Blackboard Kimmel, Survey of Accounting, le with Job Order Costing Help I gnment Do It Review 16-4 Culver Company is considering a long-term investment project called ZIP. ZIP will require an investment of $123,600. It will have a useful life of 4 years and no satrage value. Annual cash inflows would increase by $82,400, and annual cash outflows would increase by $41,200. The company's required rate of return is 12%. k here to view py.table Calculate the internal rate of return on this project. (Round answers to 0 decimal places, eg. 15%.) Internal rate of return on this project is between Determine whether this project should be accepted? The project %and be accepted uestion Attemots: 0 of S used SAVE FOR LATER

Explanation / Answer

1) Calculation of IRR of the project :

Net present value@12% = - $123,600 + ($82,400 - $41,200) * PVAF@12%,4years

= -$123,600 + $41,200*3.03735

= $1,539

Net present value@13% = -$123,600 + ($82,400 - $41,200) * PVAF@13%,4years

= -$123,600 + $41,200*2.97447

= -$1,052

IRR = 12% + (($1,539 - 0) / ($1,539 + $1,052)) * (13%-12%)

= 12% + ($1,539 / $2,591) * 1%

= 12% + 0.59

= 12.59%

Internal rate of return on this project is between 12% and 13%.

2) Yes the project should be accepted since it is generating positive cashflows at the given risk rate of 12%.

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