Question

Chemco Enterprises is the manufacturer of Ultra-Dry, a hydrophobic coating that will waterproof anything. Over a 5-year period, the costs associated with the pilot test product line were as follows: first cost of $32,000 and annual costs of $18,000. Annual revenue was $29,000 and used equipment was salvaged for $4,000. What rate of return did the company make on this product? The rate of return the company made on the product is _______%.

Answer 1

First cost = -32000

Cash flow from year 1 to 4 = (29000-18000) = 11000

Cash flow in year 5 = 11000+4000 = 15000

Using Excel's IRR

Year	Cash flow
0	-32000
1	11000
2	11000
3	11000
4	11000
5	15000
	23.37%

Rate of return = 23.37%

Formula-

Year	Cash flow
0	-32000
1	11000
2	11000
3	11000
4	11000
5	15000
	=IRR(B2:B7)