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Home Q & A Board Other Fields Homework Help Business Economics
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StormLrd StormLrd
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6 years ago
The Zero Machine Company is evaluating a capital expenditure proposal that requires an initial
investment of $20,960 and has predicted cash inflows of $5,000 per year for 10 years. It will have no
salvage value.

Required:
a.   Using a required rate of return of 16%, 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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#1
6 years ago
a.   Initial investment            $(20,960.00)
   Pmt = 5,000; n = 10, i = 16   24,166.14
   Net present value   $3,206.14

b.   Present value factor of an annuity of $1.00 = $20,960/$5,000 = 4.192.

From the annuity table, the 4.192 factor is closest to the 10-year row at the 20% column. Therefore, the IRR is 20%; or, using a calculator: 20.0033%
-Michigan State University
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