Brief Exercise 24-8 Open Show Work Brief Exercise 24-8 Viera Corporation is cons

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Brief Exercise 24-8

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Brief Exercise 24-8

Viera Corporation is considering investing in a new facility. The estimated cost of the facility is $1,825,826. It will be used for 12 years, then sold for $714,200. The facility will generate annual cash inflows of $386,800 and will need new annual cash outflows of $152,300. The company has a required rate of return of 7%. Click here to view PV table.

Calculate the internal rate of return on this project. (Round answer to 0 decimal place, e.g. 125.)
Internal rate of return is

%
Whether the project should be accepted.
The project

shouldshould not

be accepted. Click if you would like to Show Work for this question:

Open Show Work

Explanation / Answer

NPV = 0

Annual Cash Flows (1 through 11) = 386,800 - 152,300 = $234,500

Year 12 Cash Flow = 234,500 + 714,200 = $948,700

Suppose Internal Rate is r

So

NPV = 0

NPV = - 18,25,826 + 234,500/(1+r) + 234,500/(1+r)^2 .........+ 234,500/(1+r)^11 + 948,700/(1+r)^12

18,25,826 = 234,500/(1+r) + 234,500/(1+r)^2 .........+ 234,500/(1+r)^11 + 948,700/(1+r)^12

Calculating r

We get r = 0.10 = 10 % per annum

So our IRR > Rate of return i.e. 10 % > 7 %

So we should accept the project

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