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A company invests £400,000 in a 4-year capital project. The project is expected to incur costs payable continuously throughout the first-year expenditure at an annual rate of £2,500. The net income payments from the project will be received half-way through each year, as follows: Year 1: £24,500 Year 2: £28,000 • Year 3: £32,500 • Year 4: £35,000 Finally, it is assumed that the project can be sold on to another investor for £450,000 at the end of year 4. Calculate the annual internal rate of return resulting from this investment to the nearest 0.1%.

A company invests £400,000 in a 4-year capital project. The project is expected to incur costs payable continuously throughout the first-year expenditure at an annual rate of £2,500. The net income payments from the project will be received half-way through each year, as follows: Year 1: £24,500 Year 2: £28,000 • Year 3: £32,500 • Year 4: £35,000 Finally, it is assumed that the project can be sold on to another investor for £450,000 at the end of year 4. Calculate the annual internal rate of return resulting from this investment to the nearest 0.1%.

Principles of Accounting Volume 2
Principles of Accounting Volume 2
19th Edition
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 19EA: Redbird Company is considering a project with an initial investment of $265,000 in new equipment...
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A company invests £400,000 in a 4-year capital project. The project is expected to incur costs payable continuously throughout the first-year expenditure at an annual rate of £2,500. The net income payments from the project will be received half-way through each year, as follows: Year 1: £24,500 Year 2: £28,000 • Year 3: £32,500 • Year 4: £35,000 Finally, it is assumed that the project can be sold on to another investor for £450,000 at the end of year 4. Calculate the annual internal rate of return resulting from this investment to the nearest 0.1%.
Transcribed Image Text:A company invests £400,000 in a 4-year capital project. The project is expected to incur costs payable continuously throughout the first-year expenditure at an annual rate of £2,500. The net income payments from the project will be received half-way through each year, as follows: Year 1: £24,500 Year 2: £28,000 • Year 3: £32,500 • Year 4: £35,000 Finally, it is assumed that the project can be sold on to another investor for £450,000 at the end of year 4. Calculate the annual internal rate of return resulting from this investment to the nearest 0.1%.
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