This answer is correct How do I solve this by hand 008008 po

This answer is correct. How do I solve this by hand?

0.08/0.08 points Question 15 CCR Chemicals Inc. opened a sulfate plant in Baltimore. To comply with environmental standards CCR has to invest $200 per ton. Expected annual revenue is $30 per ton. What interest rate breaks the project even over a ten-year service life of the plant? 9% 500 6% 7%

Solution

The break-even interest rate is the Internal Rate of return (IRR) which can be computed as follows.

Using interpolation,

Using interpolation method,

IRR = RL + [NPVL / (NPVL - NPVH)] x (RH - RL) where

RL: Lower discount rate (arbitrarily assumed 10%)

RH: Higher discount rate (arbitrarily assumed 15%)

NPVL: NPV at 10%

NPVH: NPV at 15%

Therefore,

IRR = 10% + [- 15.66 / (- 15.66 + 49.44)] x (15 - 10)%

= 10% - (15.66 / 33.78) x 5%

= 10% - 0.4636 x 5%

= 10% - 2.32%

= 7.68%

Closest value is 8%. Excel IRR function will provide the exact value of IRR.

Year	Cash Flow ($)	PV Factor at 10%	Discounted Cash Flow ($)	PV Factor at 15%	Discounted Cash Flow ($)
	(A)	(B)	(A) x (B)	(C)	(A) x (C)
0	-200	1.0000	-200	1.0000	-200
1	30	0.9091	27.27	0.8696	26.09
2	30	0.8264	24.79	0.7561	22.68
3	30	0.7513	22.54	0.6575	19.73
4	30	0.6830	20.49	0.5718	17.15
5	30	0.6209	18.63	0.4972	14.92
6	30	0.5645	16.93	0.4323	12.97
7	30	0.5132	15.39	0.3759	11.28
8	30	0.4665	14.00	0.3269	9.81
9	30	0.4241	12.72	0.2843	8.53
10	30	0.3855	11.57	0.2472	7.42
		NPVL ($) =	-15.66	NPVH ($) =	-49.44