A firm is considering a project requiring an investment of $30,000. The project would generate an annual cash flow of $7,251 for

Question

Nookie1986 [14]

3 years ago

7

A firm is considering a project requiring an investment of $30,000. The project would generate an annual cash flow of $7,251 for

the next six years. The company uses the straight-line method of depreciation with no mid-year convention. Ignore income taxes. The approximate internal rate of return for the project is: __________
a.11%.
b.10%.
c.12%.
d.9%.

Business

1 answer:

Nina [5.8K] · Answer 1 · 2022-07-09T16:04:06+03:00

Answer:

c.12%

Explanation:

PVF of 12% for 6 years is 4.11

PVFof 11% for 6 years is 4.23

Present value of cash inflows, 12% = 7251*4.11

Present value of cash inflows, 12% = 29801.61

Present value of cash inflows, 11% = 7251*4.23

Present value of cash inflows, 11% = 30671.73

Internal rate of return = 11% + (30671.73 - 30000)/(30671.73-29801.61)

Internal rate of return = 11.7719969659%

Internal rate of return = 11.772%