You are the owner of a local beach bar and you are considering the purchase of a

Question

You are the owner of a local beach bar and you are considering the purchase of a new alcohol distribution system to keep your bartenders from swiping all of your good stuff. The new system will cost $20,000 and will reduce working capital (investment in alcohol) by $20,000. The system will be sold to the competition for $19500(Net after tax) at the end of the five year useful life. The new equipment is expected to generate an OCF of $46,500 per year. Given this, what is the IRR of the investment?

Answer: 9.12%

How would I input the information properly yo get the IRR?

Explanation / Answer

We have Initial Inv = $200,000.
As Wrk Cap has reduced by $20,000, CF0 = -200,000+20,000 = -180,000
CF1 to CF4 = $46,500
CF5 = 46500+19500-20000 = 46000 (Post 5 Yrs as eqpt is sold, Wrkg Cap reqt will again increase to Orig value. So it will Inc by 20,000)

So IRR=IRR(CFs) = IRR(-180000,46500,46500,46500,46500,46000) = 9.12%

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.