Question

Maldonado Steel invested in a new project that has an internal rate of return (IRR) of 9%. They expect the project to have annual cash flows of $52,000 for six years. What were the capital expenditures for this project (the PV of an annuity for 6 periods at 9%

Answer 1

The capital expenditures for this project (the PV of an annuity for 6 periods at 9%

Capital costs are price range used to accumulate, upgrade, or preserve capital assets. Capital fees are contemplated inside the cash flow announcement, and can be calculated by including cutting-edge depreciation with the trade in plant, assets, and device from the previous accounting cycle.

IRR Factor = Net Initial Investment / Annual Cash Inflow

Project A : IRR Factor = 238500 / 49000 = 4.8673

In the PV annuity table for Year 7 row, we have for 10% - 4.8684 and for 11% - 4.7122. Hence the IRR would be between these number (almost 10% types) . The IRR would be = 10% + (1% - (4.8673-4.7122)/(4.8684-4.7122)) = 10.00674%

Project B : IRR Factor = 152400 / (90000-55000) = 4.3543

In the PV annuity table for Year 6 row, we have for 10% - 4.3553 and for 11% - 4.2305. Again we will use the same formula as above - IRR = 10% + (1% - (4.3543-4.2305)/(4.3553-4.2305)) = 10.00813%

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