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Net Present Value Method and Internal Rate of Return Method

Wisconsin Healthcare Corp. is proposing to spend $189,788 on a project that has estimated net cash flows of $34,000 for each of the next seven years.

Present Value of an Annuity of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	1.833	1.736	1.690	1.626	1.528
3	2.673	2.487	2.402	2.283	2.106
4	3.465	3.170	3.037	2.855	2.589
5	4.212	3.791	3.605	3.353	2.991
6	4.917	4.355	4.111	3.785	3.326
7	5.582	4.868	4.564	4.160	3.605
8	6.210	5.335	4.968	4.487	3.837
9	6.802	5.759	5.328	4.772	4.031
10	7.360	6.145	5.650	5.019	4.192

a. Compute the net present value, using a rate of return of 10%. Use the table of present values of an annuity of $1 presented above. If required, use the minus sign to indicate a negative net present value.

Present value of annual net cash flows	$fill in the blank 1
Amount to be invested	fill in the blank 2
Net present value	$fill in the blank 3

b. Based on the analysis prepared in part (a), is the rate of return (1) more than 10%, (2) 10%, or (3) less than 10%?

more than 10%less than 10%equal to 10%

c. Determine the internal rate of return by computing a present value factor for an annuity of $1 and using the table of the present value of an annuity of $1 presented above. In your calculation, round the net present value factor to three decimal places. fill in the blank 5 %