Question

Management of Kevin Hall, a confectioner, is considering purchasing a new jelly bean-making machine at a cost of $290,200. They project that the cash flows from this investment will be $110,820 for the next seven years. If the appropriate discount rate is 14 percent, what is the IRR that Kevin Hall management can expect on this project? (Do not round discount factors. Round other intermediate calculations to 0 decimal places e.g. 15 and final answer to 2 decimal places, e.g. 5.25%.)

IRR is ----------

enter the IRR in percentages rounded to 2 decimal places

Answer 1

Ans 33.00%

Year	Project Cash Flows (i)	DF@ 14%	DF@ 14% (ii)	PV of Project A ( (i) * (ii) )	DF@ 40% (iii)	PV of Project A ( (i) * (iii) )
0	-290200	1	1	(2,90,200.00)	1	(2,90,200.00)
1	110820	1/((1+14%)^1)	0.877	97,210.53	0.714	79,157.14
2	110820	1/((1+14%)^2)	0.769	85,272.39	0.510	56,540.82
3	110820	1/((1+14%)^3)	0.675	74,800.34	0.364	40,386.30
4	110820	1/((1+14%)^4)	0.592	65,614.34	0.260	28,847.36
5	110820	1/((1+14%)^5)	0.519	57,556.44	0.186	20,605.25
6	110820	1/((1+14%)^5)	0.456	50,488.10	0.133	14,718.04
7	110820	1/((1+14%)^5)	0.400	44,287.81	0.095	10,512.88
		NPV		1,85,029.94	NPV	(39,432.21)
	IRR =	Ra + NPVa / (NPVa - NPVb) * (Rb - Ra)
		14% + 185029.94 / (185029.94 + 39432.21) * 26%
		33.00%