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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:

A)

15.24%

B)

7.93%

C)

14.05%

D)

25.41%

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 2 years ago
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