A project costing $560,000 is expected to produce annual net cash benefits of $ 80,000 over a period...

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A project costing $560,000 is expected to produce annual net cash benefits of $ 80,000 over a period of 15 years.Estimate the interest rate of return (IRR).Also find the payback period and obtain the IRR from it.How do you compare this IRR with the one directly estimated?
	
Document Preview: QUESTION :CAPITAL BUDGETINGA project costing $560,000 is expected to produce annual net cash benefits of $ 80,000 over a period of 15 years.Estimate the interest rate of return (IRR).Also find the payback period and obtain the IRR from it.How do you compare this IRR with the one directly estimated?

David · Accepted Answer

SOLUTION :
PB Period = $560,000/$80,000
          = 7 years
Present value annuuity table indicates closest factors to 7.0 are 7.191(At 11% rate of discount) and 6.811 (at 12% rate of discount) against 15 years.The actual IRR would be somewhere between 11% and 12%.Let us determine the PV of these two rates of discount.
YEARS		CFAT		PV FACTOR @11%	@12%		PV@11%	@12%
1-15		$80,

A project costing $560,000 is expected to produce annual net cash benefits of $ 80,000 over a period of 15 years.Estimate the interest rate of return (IRR).Also find the payback period and obtain the...

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