A company invests £400,000 in a 4-year capital project. The project is expected to incur costs payable continuously throughout the first-year expenditure at an annual rate of £2,500. The net income payments from the project will be received half-way through each year, as follows: Year 1: £24,500 Year 2: £28,000 • Year 3: £32,500 • Year 4: £35,000 Finally, it is assumed that the project can be sold on to another investor for £450,000 at the end of year 4. Calculate the annual internal rate of return resulting from this investment to the nearest 0.1%.
A company invests £400,000 in a 4-year capital project. The project is expected to incur costs payable continuously throughout the first-year expenditure at an annual rate of £2,500. The net income payments from the project will be received half-way through each year, as follows: Year 1: £24,500 Year 2: £28,000 • Year 3: £32,500 • Year 4: £35,000 Finally, it is assumed that the project can be sold on to another investor for £450,000 at the end of year 4. Calculate the annual internal rate of return resulting from this investment to the nearest 0.1%.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter12: Capital Budgeting: Decision Criteria
Section: Chapter Questions
Problem 1P: A project has an initial cost of 40,000, expected net cash inflows of 9,000 per year for 7 years,...
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![A company invests £400,000 in a 4-year capital project. The project is expected to incur
costs payable continuously throughout the first-year expenditure at an annual rate of £2,500.
The net income payments from the project will be received half-way through each year, as
follows:
Year 1:
£24,500
Year 2:
£28,000
• Year 3:
£32,500
• Year 4:
£35,000
Finally, it is assumed that the project can be sold on to another investor for £450,000 at the
end of year 4.
Calculate the annual internal rate of return resulting from this investment to the
nearest 0.1%.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F017b5c7e-49c0-46c7-a22b-9336d465c7c9%2F76d63aab-26be-4ebd-854d-158b01581888%2F5hme5n_processed.jpeg&w=3840&q=75)
Transcribed Image Text:A company invests £400,000 in a 4-year capital project. The project is expected to incur
costs payable continuously throughout the first-year expenditure at an annual rate of £2,500.
The net income payments from the project will be received half-way through each year, as
follows:
Year 1:
£24,500
Year 2:
£28,000
• Year 3:
£32,500
• Year 4:
£35,000
Finally, it is assumed that the project can be sold on to another investor for £450,000 at the
end of year 4.
Calculate the annual internal rate of return resulting from this investment to the
nearest 0.1%.
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