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konstantin123 [22]

3 years ago

8

Pierce Chocolates and Berry Sweets both have new projects that require an initial investment of $450,000 and will have annual ca

sh inflows of $110,000. If Pierce expects its project to last 5 years and Berry expects its project to last 6 years, which one has the higher internal rate of return?

1 answer:

Rom4ik [11]3 years ago

6 0

Answer:

Explanation:

Using a financial calculator, input the following using the "CF" button;

<u>Pierce Chocolates has 5 years of cash inflows;</u>

Initial investment ; CF0 = - 450,000

Yr1 Cashflow; CF1 = 110,000

Yr2 Cashflow; CF2 = 110,000

Yr3 Cashflow; CF3 = 110,000

Yr4 Cashflow; CF4 = 110,000

Yr5 Cashflow; CF5 = 110,000

Then compute Internal rate of return; IRR CPT = 7.09%

<u>Berry Sweets has 6 years of cash inflows;</u>

Initial investment ; CF0 = - 450,000

Yr1 Cashflow; CF1 = 110,000

Yr2 Cashflow; CF2 = 110,000

Yr3 Cashflow; CF3 = 110,000

Yr4 Cashflow; CF4 = 110,000

Yr5 Cashflow; CF5 = 110,000

Yr6 Cashflow; CF6 = 110,000

Then compute Internal rate of return; IRR CPT = 12.18% hence higher.

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