n d nga 12rear pre arat pr des annal an RR, investment life, and cashinfows Oak

Question

n d nga 12rear pre arat pr des annal an RR, investment life, and cashinfows Oak Enterp ses ac pts prop cts ea g men tan the f ms 11% oostofcaptal O kisar en y $40,000 and requires an initial investment of $307,700 (Note: All amounts are after laxes) a. Determine the IRR of this project. Is it acceptable? b. Assuming that the cash irflows continue to be $40,000 per year, how many addirional years would the fows have to continue to make the project acceptabile (that is, to make it have an c. With the given life, intial investment, and cost of capital, what is the minimum arnual cash inflow that the fem should accept? a. The propers lRR is[]%. (Round to two donal places) Enter your answer in the answer box and then click Check Answer Coar Al

Explanation / Answer

Answer to Part a.

Initial Investment = $307,700
Annual Cash Flow = $40,000
Time (n) = 12

Using Financial Calculator,
N = 12
PV = -$307,700
PMT = $40,000
FV = 0
i = 8%

So, IRR of this project is 8%

Answer to Part b.

Initial Investment = $307,700
Annual Cash Flow = $40,000
Cost of Capital = 11%
Time = n

Using financial calculator:
I = 11%
PV = -307700
FV = 0
PMT = 40000

N = 17.94

So, life of project is 17.94 years

Answer to Part c.

Initial Investment = $307,700
Annual Cash Flow = ??
Cost of Capital = 11%
Life of Project = 12 years

Using financial calculator:
N = 12
PV = -307700
FV = 0
I = 11%

PMT = 47394.20

So, annual cash inflow is $47,394.20

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