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Ganezh [65]
3 years ago
11

You are offered a chance to buy an asset for $4,500 that is expected to produce cash flows of $750 at the end of Year 1, $1,000

at the end of Year 2, $850 at the end of Year 3, and $6,250 at the end of Year 4. What rate of return would you earn if you bought this a. 22.64% b. 20.60% c. 23.77%d. 26.72% e. 17.21%
Business
1 answer:
zzz [600]3 years ago
6 0

Answer:

<em>a. 22.64%</em>

Explanation:

At first we are going to need to compute the Internal rate of return(IRR) (in which the current value of inflows = the current value of outflows)

Let's let the IRR be <em>x percent</em>

Therefore $4,500 = $750 / (1.0x)

+ $1,000 / (1.0x) <em>power 2</em> + $850 / (1.0x) <em>power 3 </em>

+ $6,250 / (1.0x) <em>power 4</em>

Thus, x = approximate return rate = <em>22.64 percent</em>

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