Question

You purchased a small company for $50,000 (in year zero). Unfortunately, things did not go well and your company lost $2,500 each year for the first three years. To alleviate the situation, during the third year, you decided to invest an additional $12,000 in the company. This smart decision resulted in a profit of $11,000 each year from the fourth year through the 16th year. At the end of 16 years the company can be sold for $40,000. Calculate the internal rate of return (IRR) as well as the NPV if MARR = 12%. Neglect depreciation or taxes in this problem

          You purchased a small company for $50,000 (in year zero).
Unfortunately, things did not go well and your company lost $2,500
each year for the first three years. To alleviate the situation,
during the third year, you decided to invest an additional $12,000
in the company. This smart decision resulted in a profit of $11,000
each year from the fourth year through the 16th year. At the end of
16 years the company can be sold for $40,000. Calculate the
internal rate of return (IRR) as well as the NPV if MARR = 12%.
Neglect depreciation or taxes in this problem

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Added by Elizabeth T.

Horngren’s Cost Accounting

Srikant M. Datar, Madhav V. Rajan 16th Edition

Instant Answer

Solved by Expert Aarti Kumari

07/26/2022

Step 1

In year 0, the net cash flow is -$50,000 (initial investment). In years 1, 2, and 3, the net cash flow is -$2,500 each year (losses). In year 3, there is an additional investment of $12,000, so the net cash flow is -$2,500 + $12,000 = $9,500. In years 4 through Show more…

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You purchased a small company for $50,000 (in year zero). Unfortunately, things did not go well and your company lost $2,500 each year for the first three years. To alleviate the situation, during the third year, you decided to invest an additional $12,000 in the company. This smart decision resulted in a profit of $11,000 each year from the fourth year through the 16th year. At the end of 16 years the company can be sold for $40,000. Calculate the internal rate of return (IRR) as well as the NPV if MARR = 12%. Neglect depreciation or taxes in this problem

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