This preview shows pages 1–2. Sign up to view the full content.
CH 21
2117
(22–25 min.)
Capital budget methods, no income taxes.
1a.
The table for the present value of annuities (Appendix B, Table 4) shows:
5 periods at 12% = 3.605
Net present value
= $60,000 (3.605) – $160,000
= $216,300 – $160,000 = $56,300
1b.
Payback period
= $160,000 ÷ $60,000 = 2.67 years
1c.
Internal rate of return:
$160,000
= Present value of annuity of $60,000 at R% for 5
years, or what factor (F) in the table of present values
of an annuity (Appendix B, Table 4) will satisfy the
following equation.
$160,000
= $60,000F
F
=
000
,
60
$
000
,
160
$
= 2.667
On the 5year line in the table for the present value of annuities (Appendix B, Table 4),
find the column closest to 2.667; it is between a rate of return of 24% and 26%.
Interpolation is necessary:
Present Value Factors
24%
2.745
2.745
IRR rate
––
2.667
26%
2.635
––
Difference
0.110
0.078
Internal rate of return
= 24% +
110
.
0
078
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview. Sign up
to
access the rest of the document.
This note was uploaded on 02/23/2010 for the course ACCT 42312 taught by Professor Huh during the Fall '09 term at CSU San Bernardino.
 Fall '09
 Huh
 Taxes

Click to edit the document details