8 Drill

1.

Youre trying to determine whether or not to expand your business by building a new manufacturing plant. The plant has an installation cost of $17.4 million, which will be depreciated straight-line to zero over its four-year life.

Required:

If the plant has projected net income of $1,755,000, $2,115,000, $1,974,000, and $1,296,000 over these four years, what is the projects average accounting return (AAR)? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Accounting return ________%

2.

Consider the following cash flows:

Year	Cash Flow
0		$	32,000
1			14,200
2			17,500
3			11,600

Required:

What is the IRR of the above set of cash flows? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Internal rate of return___________

%