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ruskin ruskin
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Posts: 664
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6 years ago
Toys and Junk Company is evaluating a capital expenditure proposal that requires an initial investment of $16,004 and has predicted cash inflows of $4,000 per year for 15 years. It will have no salvage value.

Required:
a.   Using a required rate of return rate of 14 percent, determine the net present value of the investment proposal.
b.   Determine the proposals internal rate of return.
Textbook 
Cost Accounting: A Managerial Emphasis, Canadian Edition

Cost Accounting: A Managerial Emphasis, Canadian Edition


Edition: 7th
Authors:
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wrote...
#1
6 years ago
a.
   Predicted   Year or   PV   PV of
   cash flows   years   factor   cash flows
Initial investment   $(16,004)   0   1.000   $(16,004)
Annual operations   4,000   15   6.142    24,568
Net present value            $8,564

b.
Present value factor of an annuity of $1.00 = $16,004/$4,000 = 4.001

From annuity table, the 4.001 factor is found on the 15-year row at the 24 percent column. Therefore the IRR is 24 percent.
Without mathematics, there's nothing you can do. Everything around you is mathematics. Everything around you is numbers.
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