x gi Kim, Seong Nyeon x M Ch. 9 & 10 NPV, IRR, Capit x Course Home C fi ezto.mhe
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x gi Kim, Seong Nyeon x M Ch. 9 & 10 NPV, IRR, Capit x Course Home C fi ezto.mheducation.com /hm.tpx App B Blackboard efax.com D E-Reserves (E-Res) fZfaxzero.com tal got freefax.com D My UAlbany podium Net D UAlbany M BFIN 300 Financial Management FA15: FA15 FINANCE Ch. 9 & 10 NPV, IRR, Capital Budgeting Extra Credit Practice Question 5 (of 8) 3.12 points What Is the Internal rate of return on an Investment with the following cash flows? Cash Flow Year 3 48.300 O 39.49 percent O 28.13 percent O 69 percent 13.16 percent O 38 percent Check my work Seong Nyeon Kim instructions I help F Save & Exit submit 9:45 PM EN 12/3/2015Explanation / Answer
The correct option should be 8.69%
As a rough estimate, first find the fake payback value by dividing initial cash outflows by average cash inflows.
Initial cash outflows are $ 112,000.
Average annual cash flows are $ ( 39,900 + 44,500 + 48,300) /3 = $ 44,233.
We get a fake payback value of 2.532. Refer to present value of annuity table and find that the PV factor closest to 2.532 against 3 years is 9%
We have two options close to 9%. 8.69% and 9.38%. Since the cash flows at the beginning of the project life are lower than those at the end, my choice would be 8.69%, and not 9.38 %
At IRR, the net present value of the project approximates to zero.
Let us check.
Please find the NPV at 9.38%, and you will find that the difference between present values of cash inflows and outflows would be larger.
Period Cash flows PV factor at 8.69% Present value of cash flows 0 (112,000) 1 (112,000) 1 39,900 0.920 36,708 2 44,500 0.846 37,647 3 48,300 0.779 37,626 NPV (19)Related Questions
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