CAM Company is evaluating a project requiring a capital expenditure of $619,200. The project has an estimated life of four years and no salvage value. The estimated net income and net cash flow from the project are as follows:





Year Net Income Net Cash Flow



1 $ 65,000 $ 240,000

2 92,000 260,000

3 100,000 160,000

4 52,600 70,000

Total $ 309,600 $ 730,000


Please help!!!



The company’s minimum desired rate of return is 12%. The present value at compound interest of 12% for 1, 2, 3, and 4 years is .893, .797, .712, and .636 respectively.



Determine:



A.) Average Rate of Return (giving effect to depreciation on the investment)

B.) Net Present Value

C.) Internal Rate of Return

D.) Payback Period

Martha10

Well I can start by giving you some formula which you can apply eventually to find your answers :

IRR : L + [ __P____ X ( H - L )

Martha10

Sorry Send My Message Before Finishing My Reply :

The Irr Converts The Npv Into A %. This Is Done Because People Are More Familiar With Rates Of Rates Of Interest So Understand More Clearly That Borrowing At 10% And Investing At 13 % Is Good For Example.

Whereas Borring At 10% Getting A Npv Of $52,000 May Not Be So Obvious.

The Irr Is The Point Where The Npv Is O.

L : Is The Lower Rate Of Increase - Example 10%
H : Is The Higher Rate Of Increase - Example 20%
P : Is The Positive Npv : Example 52,261
N: Is The Negative Npv : Example 119,846

Formula Will Be : L + [ P/ P - N X ( H - L ]
So 10% + [ 52,261/52,261 + 119,846 X ( 20% - 10%)
You Have Your Irr.

morgaine300

Just as a note, lindslu, this belongs in finance, not accounting. Or better yet, since it's homework, in the homework help section.