Chapter 8, Problem 7PA

Question Three A company needs $10,000 in 5 years to replace a piece of equipment. How much must be invested now at an interest rate of 8% p.a. compounded daily in order to provide for this replacement?

Year    Free Cash Flow (FCF) 0 -$17,000,000 1 $4,980,000 2 $4,980,000 3 $4,980,000 4 $4,980,000 5 $6,980,000           The Net Present Value at a discount rate of 15%: Present Value (PV) for each year: PV(Year 1) = $4,980,000 ÷ (1 + 0.15)^1 = $4,330,435. PV(Year 2) = $4,980,000 ÷ (1 + 0.15)^2 = $3,765,590. PV(Year 3) = $4,980,000 ÷ (1 + 0.15)^3 = $3,274,426. PV(Year 4) = $4,980,000 ÷ (1 + 0.15)^4 = $2,847,328. PV(Year 5) = $6,980,000 ÷ (1 + 0.15)^5 = $3,477,617. Sum of PVs = $4,330,435 + $3,765,590 + $3,274,426 + $2,847,328 + $3,477,617 = $17,695,396. Initial Investment = $17,000,000. NPV = Total PV - Initial Investment = $17,695,396 - $17,000,000 = $695,396. Calculate The Internal Rate of Return

Please solve this question by using appropriate method.