Question

Siegmeyer Corp. is considering a new inventory system, Project A will cost $750,000. The system is expected to generate positive cash flows over the next four years in the amounts of $350,000 in year one, $325,000 in year two, $150,000 in year three, and $180,000 in year four. Siegmeyer’s required rate of return is 8%. what is the internal rate of return of this project?

Answer 1

Ans 15.13%

Year	Project Cash Flows (i)		DF@ 10% (ii)	PV of Project A ( (i) * (ii) )	DF@ 20% (ii)	PV of Project A ( (i) * (ii) )
0	-750000		1	(7,50,000.00)	1	(7,50,000.00)
1	350000		0.909	3,18,181.82	0.833	2,91,666.67
2	325000		0.826	2,68,595.04	0.694	2,25,694.44
3	150000		0.751	1,12,697.22	0.579	86,805.56
4	180000		0.683	1,22,942.42	0.482	86,805.56
		NPV		72,416.50	NPV	(59,027.78)
	IRR =	Ra + NPVa / (NPVa - NPVb) * (Rb - Ra)
		10% + 72416.5 / (72416.5 + 59027.89)*10%
		15.13%