Question

A popular equipment company wants to provide a new computerized sound system in order to play at bigger convert that will generate $ 11 million dollar in new income. The system costs $4 million dolars has a life of 10 years and annual maintainace cost that is 5% of the initial cost at year 5 the system will require $50 thousands rebuild and upgrade cost the company IRR is 6 % and MARR =20% determine the RoR for the investment

Answer 1

Year	Cash outflows	Cash inflows	Net cash flows	Present value net cash flows
0	$4,000,000
1	$200,000	$11,000,000	$10,800,000	$9,000,000.0
2	$200,000	$11,000,000	$10,800,000	$7,500,000.0
3	$200,000	$11,000,000	$10,800,000	$6,250,000.0
4	$200,000	$11,000,000	$10,800,000	$5,208,333.3
5	$250,000	$11,000,000	$10,750,000	$4,320,183.9
6	$200,000	$11,000,000	$10,800,000	$3,616,898.1
7	$200,000	$11,000,000	$10,800,000	$3,014,081.8
8	$200,000	$11,000,000	$10,800,000	$2,511,734.8
9	$200,000	$11,000,000	$10,800,000	$2,093,112.4
10	$200,000	$11,000,000	$10,800,000	$1,744,260.3
				$45,258,604.6

Rate of return = Average income Average investment

Average income = $45,258,604.6 / 10

Average income = $4,525,860.46

Average investment = $ 4,000,000 2

Average investment = $ 2,000,000

Rate of return =$4,525,860.46     $ 2,000,000

Rate of return = 226.29%