Chaquille's K-House, Inc. made an investment in a project with an initial cost of $11,064,450. This investment was for 8 years and had no residual value. The company expects to receive yearly net cash inflows of $2,603,400. Management is requiring a return of 12% on the investment. (Round your answers to two decimal places when needed and use rounded answers for all future calculations).
Chaquille's K-House, Inc. made an investment in a project with an initial cost of $11,064,450. This investment was for 8 years and had no residual value. The company expects to receive yearly net cash inflows of $2,603,400. Management is requiring a return of 12% on the investment. (Round your answers to two decimal places when needed and use rounded answers for all future calculations).
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Chaquille's K-House, Inc. made an investment in a project with an initial cost of $11,064,450. This investment was for 8 years and had no residual value. The company expects to receive yearly net
(Round your answers to two decimal places when needed and use rounded answers for all future calculations).
Transcribed Image Text:1. What is the IRR for the project? Is this a good investment?
Inital Investment / Annual Net Cash Flow = Annuity PV Factor
11,064,450✔ I
2,603,400✔ =
Present value factor of an annuity of $1
1 − (1 + r) ¯
r
Annuity Factor =
Rate Periods Annuity Factor
4.96✔
12% 8
14% 8
16% 8
17% 8
Chaquille's K-House,
Inc.
4.63✔
PV of annuity
Initial Investment
NPV of the Project
4.34✔
4.20✔
-n
I
2. Use the rate closest to the calculated Annuity PV factor that creates a positive NPV.
where r = rate, and n = # of periods.
Net Cash Inflow
4.25✓
2,603,400✔
Annuity PV
Factor
4.34✔
Present Value
11,308,104.54 x
-11,064,450.00 x
243,654.54 x
3. Is this an attractive investment? Yes, IRR exceeds the required rate of return.
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