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 $33,000 and annual costs of $18,000. Annual revenue was $30,000 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

Using Excel's IRR formula

First cost = -33000

Cash flow from year 1 to year 4 = (30000-18000) = 12000

Cash flow in year 5 = 12000+4000 = 16000

Formula-

Year	Cash flow
0	-33000
1	12000
2	12000
3	12000
4	12000
5	16000
	=IRR(B2:B7)

Year	Cash flow
0	-33000
1	12000
2	12000
3	12000
4	12000
5	16000
	25.8%

Rate = 25.83% or 26%