A manufacturer is considering investing in a new production line that requires an initial capital investment of £79,000. Once in operation, the production line is expected to generate the following net earnings at the end of the years stated: YEAR 1 2 3 4 EARNINGS £15,500 £17,200 £19,500 £12,700 Furthermore, exactly mid-year during the second year there will be a further one-off maintenance cost amounting to £1,600. Then at the end of the planned 4-year service it is expected that the company will be able to sell the machinery for £41,000. Calculate, to the nearest 0.01%, the annual internal rate of return the manufacturer can expect to earn from this investment.
A manufacturer is considering investing in a new production line that requires an initial capital investment of £79,000. Once in operation, the production line is expected to generate the following net earnings at the end of the years stated: YEAR 1 2 3 4 EARNINGS £15,500 £17,200 £19,500 £12,700 Furthermore, exactly mid-year during the second year there will be a further one-off maintenance cost amounting to £1,600. Then at the end of the planned 4-year service it is expected that the company will be able to sell the machinery for £41,000. Calculate, to the nearest 0.01%, the annual internal rate of return the manufacturer can expect to earn from this investment.
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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PLEASE, WRITE THE SOLUTIONS ON PAPER, EXPLAINING THE ENTIRE PROCESS, THE ONLY AND CORRECT SOLUTIONS IS i* = 9.5% pa ---> NPV(9%) = 81.7971 - 80.406 = 1.3911 AND NPV (10%) = 79.6342 - 80.3869 = - 0.7526 ---> i = 9.65% pa
Transcribed Image Text:A manufacturer is considering investing in a new production line that requires an initial capital
investment of £79,000. Once in operation, the production line is expected to generate the following
net earnings at the end of the years stated:
YEAR
1
2
3
4
EARNINGS £15,500 £17,200 £19,500 £12,700
Furthermore, exactly mid-year during the second year there will be a further one-off maintenance
cost amounting to £1,600. Then at the end of the planned 4-year service it is expected that the
company will be able to sell the machinery for £41,000.
Calculate, to the nearest 0.01%, the annual internal rate of return the manufacturer can expect to
earn from this investment.
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