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Jack and Jills Place is a nonprofit nursery school run by the parents of the enrolled children. Since the school is out of town, it

Jack and Jills Place is a nonprofit nursery school run by the parents of the enrolled children. Since the school is out of town, it has a well rather than a city water supply. Lately, the well has become unreliable, and the school has had to bring in bottled drinking water. The schools governing board is considering drilling a new well (at the top of the hill, naturally). The board estimates that a new well would cost $2,966 and save the school $660 annually for 10 years. The schools hurdle rate is 8 percent.

Use Appendix A for your reference.

Note: Use appropriate factor(s) from the tables provided.

Required:

Compute the internal rate of return on the new well. Should the governing board approve the new well?

Future Value and Present Value Tables

Table I

Future Value of $1.00(1 + r)nn

Period 4% 6% 8% 10% 12% 14% 20%
1 1.040 1.060 1.030 1.100 1.120 1.140 1.200
2 1.082 1.124 1.166 1.210 1.254 1.300 1.440
3 l.125 1.191 1.260 1.331 1.405 1.482 1.728
4 1.170 1.263 1.361 1.464 1.574 1.689 2.074
5 1.217 1.338 1.469 1.61l 1.762 1.925 2.488
6 1.265 1.419 1.587 1.772 1.974 2.195 2.986
7 1.316 1.504 1.714 1.949 2.211 2.502 3.583
8 1.369 1.594 1.851 2.144 2.476 2.853 4.300
9 1.423 1.690 l.999 2.359 2.773 3.252 5.160
10 l.480 1.791 2.159 2.594 3.106 3.707 6.192
11 1.540 1.898 2.332 2.853 3.479 4.226 7.430
12 1.601 2.0 12 2.513 3.139 3.896 4.818 8.916
13 l.665 2.133 2.720 3.452 4.364 5.492 10.699
14 l.732 2.261 2.937 3.798 4.887 6.261 12.839
15 1.801 2.397 3.172 4.177 5.474 7.138 15.407
20 2.191 3.207 4.661 6.723 9.646 13.743 38.338
30 3.243 5.744 10.063 17.450 29.960 50.950 237.380
40 4.301 10.286 21.725 45.260 93.051 188.880 1,469.300

Table II

Future Value of a Series of $1.00 Cash Flows (Ordinary Annuity)(((1+r)nn 1) r)

Period 4% 6% 8% 10% 12% 14% 20%
1 1.000 1.000 1.000 l.000 1.000 1.000 1.000
2 2.040 2.060 2.080 2.100 2.120 2.140 2.220
3 3.122 3. 184 3.246 3.310 3.374 3.440 3.640
4 4.247 4.375 4.506 4.641 4.779 4.921 5.368
5 5.416 5.637 5.867 6.105 6.353 6.610 7.442
6 6.633 6.975 7.336 7.716 8.115 8.536 9.930
7 7.898 8.394 8.923 9.487 10.089 10.730 12.916
8 9.214 9.898 I0.637 Il.436 12.300 13.233 16.499
9 10.583 ll.491 12.488 13.580 14.776 16.085 20.799
10 12.006 13.181 14.487 15.938 17.549 19.337 25.959
11 13.486 14.972 16.646 18.531 20.655 23.045 32.150
12 15.026 16.870 18.977 21.385 24.133 27.271 39.580
13 16.627 18.882 21.495 24.523 28.029 32.089 48.497
14 18.292 21.015 24.215 27.976 32.393 37.581 59.196
15 20.024 23.276 27.152 31.773 37.280 43.842 72.035
20 29.778 36.773 45.762 57.276 75.052 91.025 186.690
30 56.085 79.058 113.283 164.496 241.330 356.790 l,181.900
40 95.026 154.762 259.057 442.597 767.090 1.342.000 7,343.900

Table III

Present Value of $1.00 (1 (1+r)nn)

Period 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% 32%
1 .962 .943 .926 .909 .893 .877 .862 .847 .833 .820 .806 .794 .781 .769 .758
2 .925 .890 .857 .826 .797 .769 .743 .718 .694 .672 .650 .630 .610 .592 .574
3 .889 .840 .794 .751 .712 .675 .641 .609 .579 .551 .524 .500 .477 .455 .435
4 .855 .792 .735 .683 .636 .592 .552 .516 .482 .451 .423 .397 .373 .350 .329
5 .822 .747 .681 .621 .567 .519 .476 .437 .402 .370 .341 .315 .291 .269 .250
6 .790 .705 .630 .564 .507 .456 .410 .370 .335 .303 .275 .250 .227 .207 .189
7 .760 .665 .583 .513 .452 .400 .354 .314 .279 .249 222 .198 .178 .159 .143
8 .731 .627 .540 .467 .404 .351 .305 .266 .233 .204 .179 .157 .139 .123 .108
9 .703 .592 .500 .424 .361 .308 .263 .225 .194 .167 .144 .125 .108 .094 .082
10 .676 .558 .463 .386 .322 .270 .227 .191 .162 .137 .116 .099 .085 .073 .062
11 .650 .527 .429 .350 .287 .237 .195 .162 .135 .112 .094 .079 .066 .056 .047
12 .625 .497 .397 .319 .257 .208 .168 .137 .112 .092 .076 .062 .052 .043 .036
13 .601 .469 .368 .290 .229 .182 .145 .116 .093 .075 .061 .050 .040 .033 .027
14 .577 .442 .340 .263 .205 .160 .125 .099 .078 .062 .049 .039 .032 .025 .021
15 .555 .417 .315 .239 .183 .140 .108 .084 .065 .051 .040 .031 .025 .020 .016
20 .456 .312 .215 .149 .104 .073 .051 .037 .026 .019 .014 .010 .007 .005 .004
30 .308 .174 .099 .057 .033 .020 .012 .007 .004 .003 .002 .001 .001
40 .208 .097 .046 .022 .011 .005 .003 .001 .001

Table IV

Present Value of Series of $1.00 Cash Flows 1/r (1 (1 (1+rnn)))

Period 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 25% 26% 28% 30%
1 0.962 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 0.820 0.806 0.800 0.794 0.781 0.769
2 1.886 1.833 1.783 1.736 1.690 1.647 1.605 1.566 1.528 1.492 1.457 1.440 1.424 1.392 1.361
3 2.775 2.673 2.577 2.487 2.402 2.322 2.246 2.174 2.106 2.042 1.981 1.952 1.923 1.868 1.816
4 3.630 3.465 3.312 3.170 3.037 2.914 2.798 2.690 2.589 2.494 2.404 2.362 2.320 2.241 2.166
5 4.452 4.212 3.993 3.791 3.605 3.433 3.274 3.127 2.991 2.864 2.745 2.689 2.635 2.532 2.436
6 5.242 4.917 4.623 4.355 4.111 3.889 3.685 3.498 3.326 3.167 3.020 2.951 2.885 2.759 2.643
7 6.002 5.582 5.206 4.868 4.564 4.288 4.039 3.812 3.605 3.416 3.242 3.161 3.083 2.937 2.802
8 6.733 6.210 5.747 5.335 4.968 4.639 4.344 4.078 3.837 3.619 3.421 3.329 3.241 3.076 2.925
9 7.435 6.802 6.247 5.759 5.328 4.946 4.607 4.303 4.031 3.786 3.566 3.463 3.366 3.184 3.019
10 8. 111 7.360 6.710 6.145 5.650 5.216 4.833 4.494 4.192 3.923 3.682 3.571 3.465 3.269 3.092
11 8.760 7.887 7.139 6.495 5.938 5.453 5.029 4.656 4.327 4.035 3.776 3.656 3.544 3.335 3.147
12 9.385 8.384 7.536 6.814 6.194 5.660 5.197 4.793 4.439 4.127 3.851 3.725 3.606 3.387 3.190
13 9.986 8.853 7.904 7.103 6.424 5.842 5.342 4.910 4.533 4.203 3.912 3.780 3.656 3.427 3.223
14 10.563 9.295 8.244 7.367 6.628 6.002 5.468 5.008 4.611 4.265 3.962 3.824 3.695 3.459 3.249
15 11.118 9.712 8.559 7.606 6.811 6.142 5.575 5.092 4.675 4.315 4.001 3.859 3.726 3.483 3.268
20 13.590 11.470 9.818 8.514 7.469 6.623 5.929 5.353 4.870 4.460 4.110 3.954 3.808 3.546 3.316
30 17.292 13.765 11.258 9.427 8.055 7.003 6.177 5.517 4.979 4.534 4.160 3.995 3.842 3.569 3.332
40 19.793 15.046 11.925 9.779 8.244 7.105 6.234 5.548 4.997 4.544 4.166 3.999 3.846 3.571 3.333

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