Net Present Value Method and Internal Rate of Return Method for a service company Keystone Healthcare Corp. is proposing to spend $111,640 on a seven-year project that has estimated net cash flows of $20,000 for each of the seven years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 1.833 1.736 1.690 1.626 1.528 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 4.212 3.791 3.605 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. Compute the net present value, using a rate of return of 10%. Use the table of present value of an annuity of $1 presented above. If required, round to the nearest dollar. Use the minus sign to indicate a negative net present value. Present value of annual net cash flows Less amount to be invested Net present value b. Based on the analysis prepared in part (a), is the rate of return (1) more than 10%, (2) 10%, or (3) less than 10%? c. Determine the internal rate of return by computing a present value factor for an annuity of $1 and using the table of the present value of an annuity of $1 presented above.
Net Present Value Method and Internal Rate of Return Method for a service company Keystone Healthcare Corp. is proposing to spend $111,640 on a seven-year project that has estimated net cash flows of $20,000 for each of the seven years. Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 1.833 1.736 1.690 1.626 1.528 2.673 2.487 2.402 2.283 2.106 4 3.465 3.170 3.037 2.855 2.589 4.212 3.791 3.605 3.352 2.991 6 4.917 4.355 4.111 3.784 3.326 5.582 4.868 4.564 4.160 3.605 8 6.210 5.335 4.968 4.487 3.837 9 6.802 5.759 5.328 4.772 4.031 10 7.360 6.145 5.650 5.019 4.192 a. Compute the net present value, using a rate of return of 10%. Use the table of present value of an annuity of $1 presented above. If required, round to the nearest dollar. Use the minus sign to indicate a negative net present value. Present value of annual net cash flows Less amount to be invested Net present value b. Based on the analysis prepared in part (a), is the rate of return (1) more than 10%, (2) 10%, or (3) less than 10%? c. Determine the internal rate of return by computing a present value factor for an annuity of $1 and using the table of the present value of an annuity of $1 presented above.
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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Transcribed Image Text:Net Present Value Method and Internal Rate of Return Method for a service company
Keystone Healthcare Corp. is proposing to spend $111,640 on a seven-year project that has estimated net cash flows of $20,000 for each of the seven years.
Present Value of an Annuity of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
1
0.943
0.909
0.893
0.870
0.833
2
1.833
1.736
1.690
1.626
1.528
3
2.673
2.487
2.402
2.283
2.106
4
3.465
3.170
3.037
2.855
2.589
5
4.212
3.791
3.605
3.352
2.991
4.917
4.355
4.111
3.784
3.326
7
5.582
4.868
4.564
4.160
3.605
8
6.210
5.335
4.968
4.487
3.837
9
6.802
5.759
5.328
4.772
4.031
10
7.360
6.145
5.650
5.019
4.192
a. Compute the net present value, using a rate of return of 10%. Use the table of present value of an annuity of $1 presented above. If required, round to the nearest
dollar. Use the minus sign to indicate a negative net present value.
Present value of annual net cash flows
Less amount to be invested
Net present value
b. Based on the analysis prepared in part (a), is the rate of return (1) more than 10%, (2) 10%, or (3) less than 10%?
c. Determine the internal rate of return by computing a present value factor for an annuity of $1 and using the table of the present value of an annuity of $1 presented
above.
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