Park Co. is considering an investment that requires immediate payment of $27,000 and provides expected cash inflows of $9,000 annually for four years. Park Co. requires a 10% return on its investments.
1-a. What is the internal rate of return? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.)
1-b. Based on its internal rate of return, should Park Co. make the investment? Yes
A company is considering investing in a new machine that requires a cash payment of $47,947 today. The machine will generate annual cash flows of $21,000 for the next three years.
What is the internal rate of return if the company buys this machine? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided.)
Explanation:
Present value factor =Amount invested/Net cash flows
=$47,947/21,000=2.2832
Searching the three year row in Table B.3 for a present value factor of 2.2832 shows that the internal rate of return is 15%
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