Payback Period, IRR, and Minimum Cash Flows
The management of Mesquite Limited is currently evaluating the following investment proposal:
Time 0 Year 1 Year 2 Year 3 Year 4 Initial investment $260,000 -- -- -- -- Net operating cash inflows -- $100,000 $100,000 $100,000 $100,000
(a) Determine the proposal's payback period.
Answer
years
(b) Determine the proposal's internal rate of return. (Refer to Appendix 12B if you use the table approach.)
Answer
%
(c) Given the amount of the initial investment, determine the minimum annual net cash inflows required to obtain an internal rate of return of 16 percent. Round the answer to the nearest dollar.
$ Answer
Payback Period, IRR, and Minimum Cash Flows
The management of Mesquite Limited is currently evaluating the following investment proposal:
| Time 0 | Year 1 | Year 2 | Year 3 | Year 4 | |
|---|---|---|---|---|---|
| Initial investment | $260,000 | -- | -- | -- | -- |
| Net operating | |||||
| cash inflows | -- | $100,000 | $100,000 | $100,000 | $100,000 |
(a) Determine the proposal's payback period.
Answer
years
(b) Determine the proposal's internal rate of return. (Refer to Appendix 12B if you use the table approach.)
Answer
%
(c) Given the amount of the initial investment, determine the minimum annual net cash inflows required to obtain an internal rate of return of 16 percent. Round the answer to the nearest dollar.
$ Answer
Related questions
Payback Period, IRR, and Minimum CashFlows
The management of Mesquite Limited is currently evaluating thefollowing investment proposal:
| Time 0 | Year 1 | Year 2 | Year 3 | Year 4 | |
|---|---|---|---|---|---|
| Initial investment | $ 250,000 | -- | -- | -- | -- |
| Net operating | |||||
| cash inflows | -- | $ 100,000 | $ 100,000 | $ 100,000 | $ 100,000 |
(a) Determine the proposal's payback period.
Answer years
(b) Determine the proposal's internal rate of return. (Refer toAppendix 12B if you use the table approach.)
Answer %
(c) Given the amount of the initial investment, determine theminimum annual net cash inflows required to obtain an internal rateof return of 16 percent. Round the answer to the nearestdollar.
$Answer
Copa Corporation is considering the purchase of a new machine costing $150,000. The machine would generate net cash inflows of $43,690 per year for 5 years. At the end of 5 years, the machine would have no salvage value. Copaâs cost of capital is 12 percent. Copa uses straight-line depreciation.
Using a spreadsheet or financial calculator, determine the internal rate of return for the investment.
The proposal's internal rate of return (rounded to the nearest percent) is
| A. | 12.993 percent. | |
| B. | 16.012 percent. | |
| C. | 13.998 percent. | |
| D. | 14.251 percent. |
Copa Corporation is considering the purchase of a new machine costing $169,000. The machine would generate net cash inflows of $43,690 per year for 5 years. At the end of 5 years, the machine would have no salvage value. Copaâs cost of capital is 14 percent. Copa uses straight-line depreciation.
Using a spreadsheet or financial calculator, determine the net present value for the investment.
The proposal's net present value (rounded to the nearest dollar) is:
| A. | $(19,009) | |
| B. | $ 18,921 | |
| C. | $ 1,070 | |
| D. | $(49,450) |
