buckeye healthcare corp. is proposing to spend 186,725 on aneight year project that hass estimated net cash flows of 35,000 foreach of the eight years.
a. compute the net present value using a rate of return of 12%use the present value of an annuity of $1 table.
b. based on the analysis prepared in part a is the rate ofreturn more than 12% or less than 125, explain
c. determine the internal rate of return by computing a presentvalue factor for an annuity of $1 and using the present value of anannuity of $1.
buckeye healthcare corp. is proposing to spend 186,725 on aneight year project that hass estimated net cash flows of 35,000 foreach of the eight years.
a. compute the net present value using a rate of return of 12%use the present value of an annuity of $1 table.
b. based on the analysis prepared in part a is the rate ofreturn more than 12% or less than 125, explain
c. determine the internal rate of return by computing a presentvalue factor for an annuity of $1 and using the present value of anannuity of $1.
Related questions
The internal rate of return method is used by CarlisleConstruction Co. in analyzing a capital expenditure proposal thatinvolves an investment of $40,224 and annual net cash flows of$12,000 for each of the five years of its useful life.
| Present Value of an Annuity of $1 atCompound Interest | |||||
| Year | 6% | 10% | 12% | 15% | 20% |
| 1 | 0.943 | 0.909 | 0.893 | 0.870 | 0.833 |
| 2 | 1.833 | 1.736 | 1.690 | 1.626 | 1.528 |
| 3 | 2.673 | 2.487 | 2.402 | 2.283 | 2.106 |
| 4 | 3.465 | 3.170 | 3.037 | 2.855 | 2.589 |
| 5 | 4.212 | 3.791 | 3.605 | 3.352 | 2.991 |
| 6 | 4.917 | 4.355 | 4.111 | 3.784 | 3.326 |
| 7 | 5.582 | 4.868 | 4.564 | 4.160 | 3.605 |
| 8 | 6.210 | 5.335 | 4.968 | 4.487 | 3.837 |
| 9 | 6.802 | 5.759 | 5.328 | 4.772 | 4.031 |
| 10 | 7.360 | 6.145 | 5.650 | 5.019 | 4.192 |
a. Determine a present value factor for anannuity of $1 which can be used in determining the internal rate ofreturn. If required, round your answer to three decimal places.
b. Using the factor determined in part (a) andthe present value of an annuity of $1 table above, determine theinternal rate of return for the proposal.
%
Merrill Corp. has the following information available about a potential capital investment:
Initial investment $ 2,000,000
Annual net income $ 210,000
Expected life 8 years
Salvage value $ 220,000
Merrillâs cost of capital 10 %
Assume straight line depreciation method is used.
Required:
1. Calculate the projectâs net present value. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Round the final answer to nearest whole dollar.)
|
2. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 10 percent.
Greater than 10 Percent
Less than 10 Percent
3. Calculate the net present value using a 15 percent discount rate. (Future Value of $1, Present Value of $1, Future Value Annuity of $1, Present Value Annuity of $1.) (Use appropriate factor(s) from the tables provided. Do not round intermediate calculations. Round the final answer to nearest whole dollar.)
|
4. Without making any calculations, determine whether the internal rate of return (IRR) is more or less than 15 percent.
More than 15 percent
Less than 15 percent
Equal to 15 percent
