Jogging Gear is considering a project with an initial cash requirement of $238,400. The project will yield cash flows of $4,930 monthly for 65 months. What is the rate of return on this project?

Question

Quizplus · Accepted Answer

To find the rate of return, we need to use the formula for the present value of an annuity:

PV = C * [(1 - (1 / (1 + r)^n)) / r]

Where PV is the present value, C is the cash flow per period, r is the rate of return, and n is the number of periods.

Plugging in the given values, we get:

238,400 = 4,930 * [(1 - (1 / (1 + r)^65)) / r]

We can use a financial calculator or spreadsheet to solve for r, or we can use trial and error. After several attempts, we find that r is approximately 11.38 percent.

Therefore, the best choice is B.

Jogging Gear Is Considering a Project with an Initial Cash