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IRR

MAMr. Aboukar5y ago
HI john, James Co plans to buy a machine costing $800,000, which will last for four years and then be sold for $50,000. The net cash flows are expected to be as follows: T1 T2 T3 T4 $244,000 $286,000 $374,000 $156,000 James has a target return on capital employed of 20%. The cost of capital is 10%. Using net present values calculated at 10% and at 20%, estimate the internal rate of return (IRR) to the nearest %. this question is form opentuition mock exam. i cant view how did he arrive the answer of IRR=15%.
John MoffatJohn MoffatTutor5y ago#1
The NPV at 10% is $79,604 The NPV at 20% is $(82,846) Therefore the iRR = 10% + (79,604 / (79,604 + 82,846)) x 10% = 14.9%
MAMr. Aboukar5y ago#2
I forgot to add Scrap proceeds in the T4. I have understood it now thanks john, for your incredible support.
John MoffatJohn MoffatTutor5y ago#3
You are welcome :-)
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