Question 4 26 points Saved A project with the following cos

Question 4 26 points / Saved A project with the following costs are under consideration to determine its profitability Using the IRR comparison, and an annual MARR of 10% compounded semiannually, determine if the project should be executed First cost Semiannual operating cost$10,000 Semiannual income Salvage value Life in years $45,000 $20,000 $9,000 4 years a IRR : 169% b IRRs 6% @ C. IRR 3% d IRR-3 4%

Solution

Correct Answer : c. IRR = 3%.

Let us cross check.

IRR is rate of return where NPV approximates zero, or the present value of cash inflows equals the first cost.

Computation of NPV at discount rate of 3 % .

	0	1	2	3	4
First Cost	(45,000)
Net Operating Cash Flows		10,000	10,000	10,000	10,000
Salvage Value					9,000
Total Cash Flows	(45,000)	10,000	10,000	10,000	19,000
PV factor at 3%	1.0000	0.97087	0.94260	0.91514	0.88849
Present Values	(45,000)	9,708.70	9,426	9,151.40	16,881.31
NPV	167.41