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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 $156,000James 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%.
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%
I forgot to add Scrap proceeds in the T4. I have understood it now
thanks john, for your incredible support.
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