40) Managerial Financial Accounting Assignments AE9-16 Solution

40) Managerial Financial Accounting Assignments AE9-16 Solution

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AE9-16 IRR and Unequal Cash Flows [LO 3] Newport Department Store is considering development of an e-commerce business. The company estimates that development will require an initial outlay of $1,360,000. Other cash flows will be as follows: Year 1 ($539,400) Year 2 $150,000 Year 3 $650,000 Year 4 $700,000 Year 5 $850,000
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Assuming the company limits its analysis to five years, estimate the internal rate of return of the e-commerce business. (Round the present value factor calculations to 4 decimal places, e.g. 0.2525. Round the final answer to 0 decimal places, e.g. 25%.)
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Unformatted text preview: Internal rate of return 17 % AE9-16 As indicated, the NPV is close to zero $-45 at a rate of 6%. Thus, the IRR is approximately 6 %. PV at 6 % Cash Flow PV Factor Total $(1,360,000) 1.0000 $(1,360,000) (539,400) 0.9434 (508,870) 150,000 0.8900 133,500 650,000 0.8396 545,740 Should the company develop the e-commerce business if the required rate of return is 10 percent? No Click here if you would like to Show Work for this question AE9-16 No . Given that the required rate of return is 10%, the e-commerce business should not be developed....
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This note was uploaded on 06/21/2011 for the course MANAGERIAL MT425 taught by Professor Hodgson,k during the Spring '11 term at Kaplan University.

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40) Managerial Financial Accounting Assignments AE9-16 Solution

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