Question
In: Finance
A project has an initial outlay of $100,000. It has a single cash inflow at the...
A project has an initial outlay of $100,000. It has a single cash inflow at the end of year 4 of $200,540. What is the internal rate of return for the project (round to the nearest %)? a. 15% b. 17% c. 19% d. 21%
Solutions
Expert Solution
IRR :
IRR is the Rate at which PV of Cash Inflows are equal to PV of Cash
Outflows or Rate of growth is expected from project/ Investment. At
IRR, NPV of Project/ Investment will be Zero. It assumes that
intermediary Cfs are reinvested at IRR only.
| Particulars | Amount |
| Present Value | $ 100,000.00 |
| Future Value | $ 200,540.00 |
| Periods | 4 |
Future Value = Cash Flow * ( 1 + r )^n
$ 200540 = $ 100000 ( 1 + r ) ^ 4
( 1 + r ) ^ 4 = $200540 / $100000
( 1 + r ) ^ 4 = 2.0054
( 1 + r ) = 2.0054 ^ ( 1 / 4 )
( 1 + r ) = 1.19
r = 1.19 - 1
r = 0.19 i.e 19 %
OPtion C is correct.
jeff jeffy answered 2 years agoRelated Solutions
A project requires an initial investment of $100,000 and is expected to produce a cash inflow...
A project requires an initial investment of $100,000 and is
expected to produce a cash inflow before tax of $27,300 per year
for five years. Company A has substantial accumulated tax losses
and is unlikely to pay taxes in the foreseeable future. Company B
pays corporate taxes at a rate of 21% and can claim 100% bonus
depreciation on the investment. Suppose the opportunity cost of
capital is 10%. Ignore inflation.
a. Calculate project NPV for each company.
(Do not...
A project requires an initial investment of $100,000 and is expected to produce a cash inflow...
A project requires an initial investment of $100,000 and is
expected to produce a cash inflow before tax of $27,800 per year
for five years. Company A has substantial accumulated tax losses
and is unlikely to pay taxes in the foreseeable future. Company B
pays corporate taxes at a rate of 21% and can claim 100% bonus
depreciation on the investment. Suppose the opportunity cost of
capital is 11%. Ignore inflation.
A.Calculate project NPV for each company. (Do not round...
A project requires an initial investment of $100,000 and is expected to produce a cash inflow...
A project requires an initial investment of $100,000 and is
expected to produce a cash inflow before tax of $26,200 per year
for five years. Company A has substantial accumulated tax losses
and is unlikely to pay taxes in the foreseeable future. Company B
pays corporate taxes at a rate of 30% and can depreciate the
investment for tax purposes using the five-year MACRS tax
depreciation schedule. Suppose the opportunity cost of capital is
8%. Ignore inflation.
a. Calculate project...
A project requires an initial investment of $100,000 and is expected to produce a cash inflow...
A project requires an initial investment of $100,000 and is
expected to produce a cash inflow before tax of $26,600 per year
for five years. Company A has substantial accumulated tax losses
and is unlikely to pay taxes in the foreseeable future. Company B
pays corporate taxes at a rate of 21% and can claim 100% bonus
depreciation on the investment. Suppose the opportunity cost of
capital is 9%. Ignore inflation. Calculate the NPV for each
company. What is the...
A project requires an initial investment of $100,000 and is expected to produce a cash inflow...
A project requires an initial investment of $100,000 and is
expected to produce a cash inflow before tax of $27,700 per year
for five years. Company A has substantial accumulated tax losses
and is unlikely to pay taxes in the foreseeable future. Company B
pays corporate taxes at a rate of 21% and can claim 100% bonus
depreciation on the investment. Suppose the opportunity cost of
capital is 11%. Ignore inflation.
a. Calculate project NPV for each company. (Do not...
A project requires an initial investment of $100,000 and is expected to produce a cash inflow...
A project requires an initial investment of $100,000 and is
expected to produce a cash inflow before tax of $27,300 per year
for five years. Company A has substantial accumulated tax losses
and is unlikely to pay taxes in the foreseeable future. Company B
pays corporate taxes at a rate of 40% and can depreciate the
investment for tax purposes using the five-year MACRS tax
depreciation schedule. Suppose the opportunity cost of capital is
10%. Ignore inflation.
a. Calculate project...
A project requires an initial investment of $100,000 and is expected to produce a cash inflow...
A project requires an initial investment of $100,000 and is
expected to produce a cash inflow before tax of $27,300 per year
for five years. Company A has substantial accumulated tax losses
and is unlikely to pay taxes in the foreseeable future. Company B
pays corporate taxes at a rate of 40% and can depreciate the
investment for tax purposes using the five-year MACRS tax
depreciation schedule. Suppose the opportunity cost of capital is
10%. Ignore inflation.
a. Calculate project...
A project requires an initial investment of $100,000 and is expected to produce a cash inflow...
A project requires an initial investment of $100,000 and is
expected to produce a cash inflow before tax of $28,000 per year
for five years. Company A has substantial accumulated tax losses
and is unlikely to pay taxes in the foreseeable future. Company B
pays corporate taxes at a rate of 21% and can claim 100% bonus
depreciation on the investment. Suppose the opportunity cost of
capital is 11%. Ignore inflation & do not rely
on MACRS.
a. Calculate project...
A project requires an initial investment of $100,000 and is expected to produce a cash inflow...
A project requires an initial investment of $100,000 and is
expected to produce a cash inflow before tax of $27,200 per year
for five years. Company A has substantial accumulated tax losses
and is unlikely to pay taxes in the foreseeable future. Company B
pays corporate taxes at a rate of 21% and can claim 100% bonus
depreciation on the investment. Suppose the opportunity cost of
capital is 10%. Ignore inflation. a. Calculate project NPV for each
company. b. What...
A project requires an initial investment of $100,000 and is expected to produce a cash inflow...
A project requires an initial investment of $100,000 and is
expected to produce a cash inflow before tax of $26,000 per year
for five years. Company A has substantial accumulated tax losses
and is unlikely to pay taxes in the foreseeable future. Company B
pays corporate taxes at a rate of 21% and can claim 100% bonus
depreciation on the investment. Suppose the opportunity cost of
capital is 8%. Ignore inflation.
a. Calculate project NPV for each company.
(Do not...
ADVERTISEMENT
ADVERTISEMENT
Latest Questions
- Define “culture.” Software is defined by the Merriam-Webster Dictionary as "the programs that run on a...
- In humans, hypotrichosis (sparse body hair) is a rare autosomal recessive condition. Let h = hypotrichosis...
- Increase all of the listing prices by 5% for all listings under $500,000 and 10% for...
- Samsung Industry that requires you to act as a change agent to form an organizational change...
- Use fork() Create a program that reads characters from an input file. Use fork to create...
- A pension fund manager is considering three mutual funds. The first is a stock fund, the...
- Compute the cost of not taking the following cash discounts. (Use a 360-day year. Do not...
ADVERTISEMENT