Question

5:52 PM Aisha 4/9/19, 5:50 PM TFW ta) Define Internali Rate of Return and state whether it is a dolar amount of a percentage rate. (b) What is Capital Recovery Cost? c) You wish to endow a scholarship for a student to receive 10,000 each year. The program will last tra very long time. You expect to generate an average interest rate of 6% per year. ' administrative expenses what is the goveming equation to analyze this situation? What amount must you deposit at t O to fund such a program? ignoring

Answer 1

a: IRR is that rate of return at which NPV is zero. It is that rate at which the present value of cash inflows is exactly equal to the initial outlay. Hence it is a percentage rate.

b: Capital recovery cost is the annual equivalent cost of investment minus the salvage value.

c: The equation used here is the present value of perpetuity which is Annual cash flow/ Rate

Amount to be deposited at time 0 = 10000/6%=166666.67