Gregory Cable Company is considering investing $450,000 in telecommunications equipment that has an estimated life of five years with no residual value
The cash flows are as shown below:
Year 1 $120,000
2 235,000
3 140,000
4 $98,000
Present value of an ordinary annuity of $1:
12% 13% 14% 15%
1 0.893 0.885 0.877 0.87
2 1.69 1.668 1.647 1.626
3 2.402 2.361 2.322 2.283
4 3.037 2.974 2.914 2.855
5 3.605 3.517 3.433 3.352
Present value of $1:
12% 13% 14% 15%
1 0.893 0.885 0.877 0.87
2 0.797 0.783 0.769 0.756
3 0.712 0.693 0.675 0.658
4 0.636 0.613 0.592 0.572
5 0.567 0.543 0.519 0.497
Calculate the IRR of the project. Show your computations.
What will be an ideal response
The IRR is between 12% and 13%.
At 12% $120,000 0.893 $107,160
$235,000 0.797 187,295
$140,000 0.712 99,680
$98,000 0.636 62,328
(450,000 )
Net Present Value $6,463
At 13% $120,000 0.885 $106,200
$235,000 0.783 184,005
$140,000 0.693 97,020
$98,000 0.613 60,074
(450,000 )
Net Present Value $(2,701 )
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