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Homework answers / question archive / Julie Collins recently invested in a project that promised an internal rate of return of 15 percent
Julie Collins recently invested in a project that promised an internal rate of return of 15 percent. If the project has an expected annual cash inflow of $12,000 for six years, with no salvage value, how much did Julie pay for the project?
Present value tables or a financial calculator are required.
Answer:
B . $ 45,414
Step-by-Step explanation
The present value of the project:
= Annual cash flow x [(1 - (1 + Internal rate of return)^(- Number of years))/ Internal rate of return]
= $12,000 x [(1 - (1 + 0.15)^(-6))/ 0.15]
= $12,000 x 3.7845
= $45,414.
