A company invests £400,000 in a 4-year capital project. The project is expected to incur costs payable continuously throughout the first-year expenditure at an annual rate of £2,500. The net income payments from the project will be received half-way through each year, as follows: • Year 1: £24,500 Year 2: £28,000 • Year 3: £32,500 • Year 4: £35,000 Finally, it is assumed that the project can be sold on to another investor for £450,000 at the end of year 4. Calculate the annual internal rate of return resulting from this investment to the nearest 0.1%.
A company invests £400,000 in a 4-year capital project. The project is expected to incur costs payable continuously throughout the first-year expenditure at an annual rate of £2,500. The net income payments from the project will be received half-way through each year, as follows: • Year 1: £24,500 Year 2: £28,000 • Year 3: £32,500 • Year 4: £35,000 Finally, it is assumed that the project can be sold on to another investor for £450,000 at the end of year 4. Calculate the annual internal rate of return resulting from this investment to the nearest 0.1%.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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SHOW FULL WORKING OUT, USING FORMULAS, NO TABLES, CORRECT ANSWER IRR = 10.26% pa or 10.3% pa (for starting value consider i* = 10% ---> NPV(10%) = 3.2831 AND NPV(11%) = -9.4207
Transcribed Image Text:A company invests £400,000 in a 4-year capital project. The project is expected to incur
costs payable continuously throughout the first-year expenditure at an annual rate of £2,500.
The net income payments from the project will be received half-way through each year, as
follows:
• Year 1:
£24,500
Year 2:
£28,000
• Year 3:
£32,500
•
Year 4:
£35,000
Finally, it is assumed that the project can be sold on to another investor for £450,000 at the
end of year 4.
Calculate the annual internal rate of return resulting from this investment to the
nearest 0.1%.
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