Question
In: Finance
5. the management of Bronco Busters Boots Inc. is considering a project with a net initial...
5. the management of Bronco Busters Boots Inc. is considering a project with a net initial outlay of $60,000 and an annual net cash inflow estimated at $17,500 over the project's life of 5 years. The project has a cost of capital of 8 percent. What is the project's IRR?
Question 5 options:
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Solutions
Expert Solution
Ans C. 14.05%
| Year | Project Cash Flows (i) | DF@ 11% | DF@ 11% (ii) | PV of Project ( (i) * (ii) ) | DF@ 22% (iii) | PV of Project ( (i) * (iii) ) |
| 0 | -60000 | 1 | 1 | (60,000) | 1 | (60,000) |
| 1 | 17500 | 1/((1+11%)^1) | 0.900901 | 15,766 | 0.820 | 14,344 |
| 2 | 17500 | 1/((1+11%)^2) | 0.811622 | 14,203 | 0.672 | 11,758 |
| 3 | 17500 | 1/((1+11%)^3) | 0.731191 | 12,796 | 0.551 | 9,637 |
| 4 | 17500 | 1/((1+11%)^4) | 0.658731 | 11,528 | 0.451 | 7,899 |
| 5 | 17500 | 1/((1+11%)^5) | 0.593451 | 10,385 | 0.370 | 6,475 |
| NPV | 4,678 | NPV | (9,886) | |||
| IRR = | Ra + NPVa / (NPVa - NPVb) * (Rb - Ra) | |||||
| 11% + 4678 / (4678 + 9886)*10% | ||||||
| 14.05% |
jeff jeffy answered 1 year agoRelated Solutions
4. The management of Bronco Busters Boots Inc. is considering a project with a net initial...
4. The management of Bronco Busters Boots Inc. is considering a
project with a net initial outlay of $60,000 and an annual net cash
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project has a cost of capital of 8 percent. What is the project's
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