A Company Is Considering a Five-Year Project

question 60

Essay

A company is considering a five-year project.It plans to invest $80,000 now and it forecasts cash inflows for each year of $22,857.The company requires a hurdle rate of 12%.Calculate the internal rate of return to determine whether it should accept this project.Selected factors for a present value of an annuity of 1 for five years are shown below:
$$\begin{array}{cc}\underline{\text{Interest}}&&\underline{\text{Present Value of an Annuity of 1}}\\\underline{\text{ Rate}}&&\underline{\text{ factor}}\\10 \%&&3.7908 \\12 \%&&3.6048 \\14 \%&&3.4331\end{array}$$

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