Barron Chemical uses a thermoplastic polymer to enhance the appearance of certain RV panels. The initial cost of one process was $130,000 with annual costs of $49,000 and revenues of $78,000 in year 1, increasing by $1000 per year. A salvage value of $23,000 was realized when the process was discontinued after 8 years. What rate of return did the company make on the process? Solve by trial and error and verify i* by spreadsheet.
What will be an ideal response?
Factors: 0 = -130,000 – 49,000(P/A,i*,8) + 78,000(P/A,i*,8) + 1000(P/G,i*,8)
+ 23,000(P/F,i%,8)
Solve by trial and error
i* = 19.2%
Spreadsheet: Entries in cells B2:B10 and the function = IRR(B2:B10) display i* = 19.2%
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