alculate the internal rate of return for

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
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      Calculate the internal rate of return for project B

K-Way Limited (Ltd), a softdrink manufacturer has the option to invest in machinery for projects A and B.
However due to constraint financial resources the company may only be able to invest in one of them. You
are given the following projected data:
Information:
Project A has an initial cost of R180 000 and the expected net profit over the five-year investment is
R24 000, R31 000, R36 000, R40 000 and R19 000 per annum, respectively. Whereas, Project B has
an initial cost of R190 000 with projected annual net profit of R24 000 every year for the 5-year
expected lifespan.
Additional information:
• Project A machinery will be disposed of at the end of year 5 with a scrap value of R20 000.
• Project B machinery will be disposed of at the end of year 5 with a nil scrap value.
• Depreciation is calculated on a straight-line basis.
• The discount rate to be used by the company is 12%.
Calculate the internal rate of return for project B
Transcribed Image Text:K-Way Limited (Ltd), a softdrink manufacturer has the option to invest in machinery for projects A and B. However due to constraint financial resources the company may only be able to invest in one of them. You are given the following projected data: Information: Project A has an initial cost of R180 000 and the expected net profit over the five-year investment is R24 000, R31 000, R36 000, R40 000 and R19 000 per annum, respectively. Whereas, Project B has an initial cost of R190 000 with projected annual net profit of R24 000 every year for the 5-year expected lifespan. Additional information: • Project A machinery will be disposed of at the end of year 5 with a scrap value of R20 000. • Project B machinery will be disposed of at the end of year 5 with a nil scrap value. • Depreciation is calculated on a straight-line basis. • The discount rate to be used by the company is 12%. Calculate the internal rate of return for project B
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