Question

Welch Corporation is planning an investment with the following characteristics (Ignore income taxes.): Useful life 6 years Yearly net cash inflow $ 80,000 Salvage value $ 0 Internal rate of return 17 % Required rate of return 13 %

Answer 1

Useful life	6	years
Yearly net cash inflow	$80,000
Salvage Value	$0
IRR	17%
ROR	13%
As IRR is greater than ROR, NPV will be positive and Investment is worth.
Investment Value	$2,87,134.78
(Total of Present Value at IRR)
Year	1	2	3	4	5	6	Total
Net Cashflow	$80,000	$80,000	$80,000	$80,000	$80,000	$80,000
Dis. Factor @ 17%	0.8547	0.7305	0.6244	0.5337	0.4561	0.3898
Present Value	$68,376.07	$58,441.08	$49,949.64	$42,692.00	$36,488.89	$31,187.09	$2,87,134.78
NPV Calculation
Year	1	2	3	4	5	6	Total
Net Cashflow	$80,000	$80,000	$80,000	$80,000	$80,000	$80,000
Dis. Factor @ 13%	0.8850	0.7831	0.6931	0.6133	0.5428	0.4803
Present Value	$70,796.46	$62,651.73	$55,444.01	$49,065.50	$43,420.79	$38,425.48	$3,19,803.98
Less: Investment							-$2,87,134.78
NPV							$32,669.20
Thus, Investment has positive NPV and is worth investing.