1. Internal Rate of Return Method for a Service Company

   The Riverton Company, a ski resort, recently announced a $1,018,440 expansion to lodging properties, lifts, and terrain. Assume that this investment is estimated to produce $164,000 in equal annual cash flows for each of the first eight years of the project life.

   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. Determine the expected internal rate of return of this project for eight years, using the present value of an annuity of $1 table above. If required, round your final answer to the nearest whole percent. %

   b. Indentify the uncertainties that could reduce the internal rate of return of this project? All of these

   Feedback

   Divide the amount to be invested by the annual net cash flow. In Exhibit 5, find the rate closest to this factor for eight periods.

   Learning Objective 3, Learning Objective 4.

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