Name: Chapter 5 Quiz 1) A proposed project requires an investment of $200,000 an

Question

Name: Chapter 5 Quiz 1) A proposed project requires an investment of $200,000 and will require an additional $40,000 for upgrades in year five. The inco through four and $50,000 in years six through eight. In year five, revenue equaled expenses (exclusive of the $40,000 spent for upgrades). There is no salvage value. If the external reinvestment rate of 10% is available, what is the rate of return for this project using the ERR method? me from the project is expected to be $65,000 in years one $65,000 $65,000 $65,000 $65,000 $50,000 $50.000 $50,00 40,000 $200,000 566 1-34 3.246u

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NPV@10% NPV@20% Year Project A PV factor PV Project A PV factor PV Project A 0                         (200,000) 1.000 (200,000) 1.000 (200,000) 1                             65,000 0.909        59,091 0.833        54,167 2                             65,000 0.826        53,719 0.694        45,139 3                             65,000 0.751        48,835 0.579        37,616 4                             65,000 0.683        44,396 0.482        31,346 5                           (40,000) 0.621     (24,837) 0.402     (16,075) 6                             50,000 0.564        28,224 0.335        16,745 7                             50,000 0.513        25,658 0.279        13,954 8                             50,000 0.467        23,325 0.233        11,628 NPV        58,411        (5,480) IRR =Lower rate + Difference in rates*(NPV at lower rate)/(Lower rate NPV-Higher rate NPV) IRR =10%+10%*(58411/(58411+5480)) 19.14%

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