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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Internal rate of return method

The Canyons Resort, a Utah ski resort, announced a $400 million expansion of lodging properties, lifts, and terrain. Assume that this investment is estimated to produce $79.7 millionin equal annual cash flows for each of the first 10 years of the project life.

Determine the expected internal rate of return of this project for 10 years, using thepresent value of an annuity of $1 table found in Exhibit 5.

To determine

Concept Introduction:

Capital budgeting is a technique to plan long term investment of funds in long term activities whose benefit released for several years.

Example: - Purchase of machineries, purchase of building for business purpose, setting of factories etc.

Net Present value refers to the difference between the present value of inflows and the present value of outflows associated with the projects.

Internal Rate of Return (IRR) is a technique to measure Present value of Cash Inflows through Time value of Money.

Requirement-1:

To Calculate:

Internal Rate of Return

Explanation

Calculation of Internal Rate of Return by using $1 table

    Statement Showing calculation of Internal Rate of Return
    Year Cash inflow PVF@10%PV@10%PVF@20%PV@20%
    04001.00400.001.00400.00
    179.70.9172.450.8366.42
    279.70.8365.870.6955.35
    379.70.7559.880.5846.12
    479.70.6854.440.4838.44
    579.70.6249.490.4032.03
    679.70...

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