Exercise 16-26 Internal Rate of Return; Uneven Cash Flows (Section 1) (LO 16-1) The trustees of the Danube School of Art and Music, located in Tuttlingen, Germany, are considering a major overhaul of the school's audio system. With or without the overhaul, the system will be replaced in two years. If an overhaul is done now, the trustees expect to save the following repair costs during the next two years: year 1, 4,400 euros; year 2, 6,400 euros. The overhaul will cost 8,780 euros. (The euro is used in most European markets.) Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: Use trial and error to compute the internal rate of return on the proposed overhaul. (Hint: The NPV of the overhaul is positive if an 10 percent discount rate is used, but the NPV is negative if a 18 percent rate is used.)
Exercise 16-26 Internal Rate of Return; Uneven Cash Flows (Section 1) (LO 16-1) The trustees of the Danube School of Art and Music, located in Tuttlingen, Germany, are considering a major overhaul of the school's audio system. With or without the overhaul, the system will be replaced in two years. If an overhaul is done now, the trustees expect to save the following repair costs during the next two years: year 1, 4,400 euros; year 2, 6,400 euros. The overhaul will cost 8,780 euros. (The euro is used in most European markets.) Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: Use trial and error to compute the internal rate of return on the proposed overhaul. (Hint: The NPV of the overhaul is positive if an 10 percent discount rate is used, but the NPV is negative if a 18 percent rate is used.)
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
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Transcribed Image Text:Exercise 16-26 Internal Rate of Return; Uneven Cash Flows (Section 1) (LO 16-1)
The trustees of the Danube School of Art and Music, located in Tuttlingen, Germany, are considering a major overhaul of the school's
audio system. With or without the overhaul, the system will be replaced in two years. If an overhaul is done now, the trustees expect to
save the following repair costs during the next two years: year 1, 4,400 euros; year 2, 6,400 euros. The overhaul will cost 8,780 euros.
(The euro is used in most European markets.)
ded
Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)
Required:
Use trial and error to compute the internal rate of return on the proposed overhaul. (Hint: The NPV of the overhaul is positive if an 10
percent discount rate is used, but the NPV is negative if a 18 percent rate is used.)
Internal rate of return
15 X %
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