Use Appendix B and Appendix D for an approximate answer but calculate your final
ID: 2634920 • Letter: U
Question
Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.
Year Cashflow
1 $13,000
2 $13,000
3 $1,000
What is the net present value at a discount rate of 2 percent? (Do not round intermediate calculations and round your answer to 2 decimal places.) $_________________
What is the internal rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) ____________%
The Hudson Corporation makes an investment of $23,850 that provides the following cash flow:Use Appendix B and Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.
Year Cashflow
1 $13,000
2 $13,000
3 $1,000
What is the net present value at a discount rate of 2 percent? (Do not round intermediate calculations and round your answer to 2 decimal places.) $_________________
What is the internal rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) ____________%
Explanation / Answer
Net Present Value at discount rate 2%
Year Cashflow
1 $13,000
2 $13,000
3 $1,000
NPV = PV of cash inflows - Initial cash outflow
PV of cash inflows = ($13,000/1.021) + ($13,000/(1.02)2) + ($1,000/(1.02)3)
PV = $12,745.09 + $12,495.19 + $942.32
PV = $ 26,182.60
NPV = $26,182.60 - $ 23,850 = $ 2,332.6
IRR Calculation
IRR is the rate at which the cash inflows equal the cash outflows.
$23,850 = $13,000/(1+r)1 + $13,000 /(1+r)2 + $1,000 /(1+r)3
We need to calculate the value of r using the hit and trial method.
IRR = 8.38%
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