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Payback, Accounting Rate of Return, Net Present Value, Internal Rate of Return Follow the format shown in Exhibit 123.1 and E

Payback, Accounting Rate of Return, Net Present Value, Internal Rate of Return Follow the format shown in Exhibit 123.1 and E

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Answer #1

Solution 1:

Annual net cash inflows = $1,300,000 - $1,000,000 = $300,000

Initial investment = $730,671

Present value factor at IRR = Initial investment / Annual net cash inflows = $730,671/ $300,000 = 2.43557

Refer PV Factor table at period 5, this factor falls at IRR = 30%

Hence IRR = 30%

Solution 2:

Annual cash inflows = $1,200,000 - $1,000,000 = $200,000

Computation of NPV
Particulars Period Amount PV factor at 12% Present Value
Cash outflows:
Initial investment 0 $700,000.00 1 $700,000
Present Value of Cash outflows (A) $700,000
Cash Inflows
Annual cash inflows 1-5 $200,000.00 3.6048 $720,956
Present Value of Cash Inflows (B) $720,956
Net Present Value (NPV) (B-A) $20,956
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