Beam Cable Company is considering investing $450,000 in telecommunications equipment that has an estimated life of four years with no residual value.The cash inflows are as shown below: $$\begin{array} { | r | r | }
\hline \text { Year 1 } & \$ 120,000 \
\hline 2 & 235,000 \
\hline 3 & 140,000 \
\hline 4 & 98,000 \
\hline
\end{array}$$ The present value of $1:
$$\begin{array} { | c | c | c | c | c | c | }
\hline & 10 \% & 11 \% & 12 \% & 13 \% & 14 \% \
\hline 1 & 0.909 & 0.901 & 0.893 & 0.885 & 0.877 \
\hline 2 & 0.826 & 0.812 & 0.797 & 0.783 & 0.769 \
\hline 3 & 0.751 & 0.731 & 0.712 & 0.693 & 0.675 \
\hline 4 & 0.683 & 0.659 & 0.636 & 0.613 & 0.592 \
\hline 5 & 0.621 & 0.593 & 0.567 & 0.543 & 0.519 \
\hline
\end{array}$$ The IRR of the project would be ________.

Question

Beam Cable Company is considering investing $450,000 in telecommunications equipment that has an estimated life of four years with no residual value.The cash inflows are as shown below: $$\begin{array} { | r | r | } 
\hline \text { Year 1 } & \$ 120,000 \
\hline 2 & 235,000 \
\hline 3 & 140,000 \
\hline 4 & 98,000 \
\hline
\end{array}$$ The present value of $1:
$$\begin{array} { | c | c | c | c | c | c | } 
\hline & 10 \% & 11 \% & 12 \% & 13 \% & 14 \% \
\hline 1 & 0.909 & 0.901 & 0.893 & 0.885 & 0.877 \
\hline 2 & 0.826 & 0.812 & 0.797 & 0.783 & 0.769 \
\hline 3 & 0.751 & 0.731 & 0.712 & 0.693 & 0.675 \
\hline 4 & 0.683 & 0.659 & 0.636 & 0.613 & 0.592 \
\hline 5 & 0.621 & 0.593 & 0.567 & 0.543 & 0.519 \
\hline
\end{array}$$ The IRR of the project would be ________.

Quizplus · Accepted Answer

The Internal Rate of Return (IRR) is found where the net present value (NPV) of cash flows equals zero. By applying the present value factors to the cash inflows and comparing the sum to the initial investment, we can estimate the IRR. The cash inflows discounted at 12% give a present value less than the initial investment, while at 13% it would be even lower, indicating the IRR must be between 12% and 13%.

Beam Cable Company Is Considering Investing $450,000 in Telecommunications Equipment