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Park Co. is considering an investment that requires immediate payment of $27,000 and provides expected cash inflows of $9,000 annually for four years. Assume Park Co. requires a 10% return on its investments. 1-a. What is the internal rate of return? (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your present value factor to 4 decimals.) 1-b. Based on its internal rate of return, should Park Co. make the investment?

Respuesta :

Answer:

IRR is 12.59%

IRR of 12.59% is greater than the required return on the investment of 10%,as a result the project should be accepted

Explanation:

The internal rate of return is the rate where present value of cash inflows from a project equal the initial capital investment in the project,hence it could be termed the break-even project rate of return.

Using the IRR(Internal Rate of Return) formula in excel which is given below,one can compute the project IRR

=IRR(values)

The values are the relevant cash flows consisting of initial cash outflow as well as the subsequent years cash inflows as shown in the attached.

IRR=12.59%

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