Question

Glossimer Thread Company ls evaluating investment that will cost $755,000 and will yleld cash inflows of $240,000 in the first year, $340,000 In the second year, and S370,000 in the third and the final year. Use the table below and determine the internal rate of return Present value of S1: 9% 10% 11% 12% 1 n 926 0.917 0.909 0.901 0.893 2 0.857 0.842 0.826 0.812 0.797 3 0.794 0.772 0.751 0731 0.712 4 0.735 0.708 0.683 0.659 0,636 5 0.681 0.650 0.621 0,593 0.567 The IRR of the project will be O A. less than 11%, more than 10 % O B. more than 11% O C. less than 10 % O D. between 11 % and 11%

Can an expert please help me solve the question above? Please show work.

Answer 1

	CALCULATION OF THE NET PRESENT VALUE OF THE PROJECT @ 8%
	Years	Cash Flows	PVF of $ 1 @ 10%	Present Value
	0	-$7,55,000	1.00000	-$7,55,000.00
	1	$2,40,000	0.92600	$2,22,240.00
	2	$3,40,000	0.85700	$2,91,380.00
	3	$3,70,000	0.79400	$2,93,780.00
	Total	$1,95,000		$52,400
	CALCULATION OF THE NET PRESENT VALUE OF THE PROJECT @ 9%
	Years	Cash Flows	PVF of $ 1 @ 10%	Present Value
	0	-$7,55,000	1.000	-$7,55,000.00
	1	$2,40,000	0.917	$2,20,080.00
	2	$3,40,000	0.842	$2,86,280.00
	3	$3,70,000	0.772	$2,85,640.00
	Total	$1,95,000		$37,000
	CALCULATION OF THE NET PRESENT VALUE OF THE PROJECT @ 10%
	Years	Cash Flows	PVF of $ 1 @ 10%	Present Value
	0	-$7,55,000	1.000	-$7,55,000.00
	1	$2,40,000	0.909	$2,18,160.00
	2	$3,40,000	0.826	$2,80,840.00
	3	$3,70,000	0.751	$2,77,870.00
	Total	$1,95,000		$21,870
	CALCULATION OF THE NET PRESENT VALUE OF THE PROJECT @ 11%
	Years	Cash Flows	PVF of $ 1 @ 11%	Present Value
	0	-$7,55,000	1.000	-$7,55,000.00
	1	$2,40,000	0.901	$2,16,240.00
	2	$3,40,000	0.812	$2,76,080.00
	3	$3,70,000	0.731	$2,70,470.00
	Total	$1,95,000		$7,790
	CALCULATION OF THE NET PRESENT VALUE OF THE PROJECT @ 12%
	Years	Cash Flows	PVF of $ 1 @ 12%	Present Value
	0	-$7,55,000	1.000	-$7,55,000.00
	1	$2,40,000	0.893	$2,14,320.00
	2	$3,40,000	0.797	$2,70,980.00
	3	$3,70,000	0.712	$2,63,440.00
	Total	$1,95,000		-$6,260
	IRR : IRR Means with a particular Percentage rate , At that point the present value become the zero
	With 11% Net present value is positive and with 12% present value is negative in means the
	IRR is between 11% 12%
	With PVF of 12 % we are getting negative =			-$6,260
	With PVF of 11 % we are getting Positive =			$7,790
	So the differecne in both % net present value is =			$7,790.00	"-"	-$6,260.00
	Total is become =			$14,050.00
	So , the difference % =			$7,790.00	"/"By	$14,050.00
	So , the difference % =			0.55
	So, the IRR =			11.55%
	Answer = Option B = More than 11%