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Number 4

The company purchased for $23,000 will lose $1,200 per year for four years. An additional $8,000 investment in the fourth year will result in $5,500 profit annually for years five through fifteen. The company can then be sold for $33,000. To determine the (a) internal rate of return (IRR) and (b) calculate the future worth (FW) if the minimum acceptable rate of return (MARR) is 12%: Set up the cash flow diagram and calculate the IRR by setting the net present value equal to 0, solving for i = 10.0111%.

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Joselito Daroy
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29 views2 pages

Number 4

The company purchased for $23,000 will lose $1,200 per year for four years. An additional $8,000 investment in the fourth year will result in $5,500 profit annually for years five through fifteen. The company can then be sold for $33,000. To determine the (a) internal rate of return (IRR) and (b) calculate the future worth (FW) if the minimum acceptable rate of return (MARR) is 12%: Set up the cash flow diagram and calculate the IRR by setting the net present value equal to 0, solving for i = 10.0111%.

Uploaded by

Joselito Daroy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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PROBLEM SET NO.

2
ES 321

4. A small company purchase now for $23,000.00 will lose $1,200 each
year for the first four years. An additional $8,000 invested in the
company during the fourth year will result in a profit of $5,500 each
year form fifth year through the fifteenth year. After 15 years, the
company can be sold for $33,000. a) Determine the IRR and b)
Calculate the FW if MARR = 12%.

CF diagram

At focal date year 0:


Cash outflows: Co
1 ( 1 i )4 4
Co 23,000 1,200 8 ,000( 1 i )
i

Cash inflows: Ci
1 ( 1 i )11
Ci 5 ,500
i

4
( 1 i ) 33,000( 1 i )
15

1 ( 1 i )4 4
23 ,000 1,200 8 ,000( 1 i )
i
1 ( 1 i )

10
5 15
5 ,500
i ( 1 i ) 33 ,000( 1 i )

Solving for i :

i 10.0111 %

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