Peri Corporation is considering an investment opportunity with the following expected net cash inflows

Question

Year 1, $230,000; Year 2, $370,000; Year 3, $360,000. The company uses a discount rate of 13%, and the initial cost of the investment is $720,000.

Present Value of $1:

10% 11% 12% 13% 14% 15%
1 0.909 0.901 0.893 0.885 0.877 0.870
2 0.826 0.812 0.797 0.783 0.769 0.756
3 0.751 0.731 0.712 0.693 0.675 0.658
4 0.683 0.659 0.636 0.613 0.592 0.572
5 0.621 0.593 0.567 0.543 0.519 0.497

The IRR of the project will be ________.
A) less than 13%
B) between 13% and 14%
C) between 14% and 15%
D) more than 13%

Answer 1

C .C)
At 13% $230,000 0.885 $203,550
$370,000 0.783 289,710
$360,000 0.693 249,480
(720,000 )
Net Present Value $22,740

At 14% $230,000 0.877 $201,710
$370,000 0.769 284,530
$360,000 0.675 243,000
(720,000 )
Net Present Value $9,240

At 15% $230,000 0.87 $200,100
$370,000 0.756 279,720
$360,000 0.658 236,880
(720,000 )
Net Present Value $(3,300 )