Kings Department Store is contemplating the purchase of a new machine at a cost of $22,115. The machine will provide $5,000 per year in cash flow for seven years. Kings has a cost of capital of 9 percent. Use Appendix D for an approximate answer but calculate your final answer using the financial calculator method.
a. What is the internal rate of return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
b. Should the project be undertaken?
Appendix D Present value of an annuity of $1, PVIFA PVA=A 1 - 1 (1 + i)" Period 1% 3% 4% 5% 8% 12% 1 11% 0.901 0.926 9% 0.917 1.759 10% 0.909 1.736 0.893 2 1.690 0.990 1.970 2.941 3.902 4.853 3 0.971 1.913 2.829 3.717 4.580 2% 0.980 1.942 2.884 3.808 4.713 5.601 6.472 0.962 1.886 2.775 3.630 4.452 1.713 2.444 0.952 1.859 2.723 3.546 4.329 2.531 1.783 2.577 3.312 3.993 4 3.102 5 6 5.795 5.076 4.623 7 5.206 8 2.487 3.170 3.791 4.355 4.868 5.335 5.759 6.145 6.495 7.325 9 6.728 7.652 8.566 9.471 10.368 11.255 12.134 13.004 5.786 6.463 7.108 7.722 8.306 8.863 10 11 12 Percent 6% 7% 0.943 0.935 1.833 1.808 2.673 2.624 3.465 3.387 4.212 4.100 4.917 4.767 5.582 5.389 6.210 5.971 6.802 6.515 7.360 7.024 7.887 7.499 8.384 7.943 8.853 8.358 9.295 8.745 9.712 9.108 10.106 9.447 10.477 9.763 10.828 10.059 11.158 10.336 11.470 10.594 12.783 11.654 13.765 12.409 15.046 13.332 15.762 13.801 13 2.402 3.037 3.605 4.111 4.564 4.968 5.328 5.650 5.938 6.194 6.424 6.628 6.811 6.974 9.394 9.899 6.814 7.103 7.367 14 5.417 6.230 7.020 7.786 8.530 9.253 9.954 10.635 11.296 11.938 12.561 13.166 13.754 14.324 14.877 17.413 19.600 23.115 25.730 3.240 3.890 4.486 5.033 5.535 5.995 6.418 6.805 7.161 7.487 7.786 8.061 8.313 8.544 8.756 8.950 9.129 9.823 10.274 10.757 10.962 5.242 6.002 6.733 7.435 8.111 8.760 9.385 9.986 10.563 11.118 11.652 12.166 12.659 13.134 13.590 15.622 17.292 19.793 21.482 8.162 8.983 9.787 10.575 11.348 12.106 12.849 13.578 14.292 14.992 15.678 16.351 19.523 22.396 27.355 31.424 15 3.696 4.231 4.712 5.146 5.537 5.889 6.207 6.492 6.750 6.982 7.191 7.379 7.549 7.702 7.839 7.963 8.422 8.694 8.951 9.042 16 5.747 6.247 6.710 7.139 7.536 7.904 8.244 8.559 8.851 9.122 9.372 9.604 9.818 10.675 11.258 11.925 12.233 13.865 14.718 15.562 16.398 17.226 18.046 22.023 25.808 17 7.606 7.824 8.022 8.201 8.365 18 10.380 10.838 11.274 11.690 12.085 12.462 14.094 15.372 17.159 18.256 19 20 25 7.120 7.250 7.366 7.469 7.843 8.055 8.244 8.304 8.514 9.077 9.427 9.779 9.915 30 40 32.835 50 39.196 Appendix D (concluded) Present value of an annuity of $1 Percent 15% 18% 19% 20% 25% 30% 40% Period 1................. 1 2 13% 0.885 1.668 2.361 2.974 14% 0.877 1.647 0.870 1.626 35% 0.741 1.289 1.696 0.769 1.361 1.816 2.166 50% 0.667 1.111 1.407 0.714 1.224 1.589 1.849 3 2.322 2.283 4 16% 0.862 1.605 2.246 2.798 3.274 3.685 4.039 4.344 2.914 0.833 1.528 2.106 2.589 2.991 3.326 3.605 2.855 1.997 1.605 5 3.433 3.352 2.220 3.517 3.998 2.436 2.643 1.737 1.824 6 3.784 2.385 2.035 2.168 2.263 3.889 4.288 7 4.160 2.802 1.883 2.508 2.598 8 2.331 9 10 2.665 2.715 2.752 2.779 11 12 3.837 4.031 4.192 4.327 4.439 4.533 17% 0.855 1.585 2.210 2.743 3.199 3.589 3.922 4.207 4.451 4.659 4.836 4.988 5.118 5.229 5.324 5.405 5.475 5.534 5.584 5.628 5.766 5.829 5.871 5.880 0.847 1.566 2.174 2.690 3.127 3.498 3.812 4.078 4.303 4.494 4.656 4.793 4.910 5.008 5.092 5.162 5.222 5.273 5.316 5.353 5.467 5.517 5.548 5.554 4.423 4.799 5.132 5.426 5.687 5.918 6.122 6.302 6.462 6.604 6.729 6.840 6.938 7.025 7.330 7.496 7.634 7.675 13 0.840 1.547 2.140 2.639 3.058 3.410 3.706 3.954 4.163 4.339 4.486 4.611 4.715 4.802 4.876 4.938 4.988 5.033 5.070 5.101 5.195 5.235 5.258 5.262 4.639 4.946 5.216 5.453 5.660 5.842 6.002 6.142 6.265 6.373 6.467 6.550 6.623 6.873 7.003 7.105 7.133 2.799 4.487 4.772 5.019 5.234 5.421 5.583 5.724 5.847 5.954 6.047 6.128 6.198 6.259 6.464 6.566 6.642 6.661 14 0.800 1.440 1.952 2.362 2.689 2.951 3.161 3.329 3.463 3.571 3.656 3.725 3.780 3.824 3.859 3.887 3.910 3.928 3.942 3.954 3.985 3.995 3.999 4.000 4.607 4.833 5.029 5.197 5.342 5.468 5.575 5.668 5.749 5.818 5.877 5.929 6.097 6.177 6.233 6.246 15 16 17 2.925 3.019 3.092 3.147 3.190 3.223 3.249 3.268 3.283 3.295 3.304 3.311 3.316 3.329 3.332 3.333 3.333 2.814 2.825 2.834 2.840 2.379 2.414 2.438 2.456 2.469 2.478 2.484 2.489 2.492 2.494 2.496 2.497 2.499 2.500 2.500 2.500 4.611 4.675 4.730 4.775 4.812 4.843 4.870 4.948 4.979 4.997 4.999 1.922 1.948 1.965 1.977 1.985 1.990 1.993 1.995 1.997 1.998 1.999 1.999 1.999 2.000 2.000 2.000 2.000 18 19 20 25 2.844 2.848 2.850 2.856 2.857 2.857 2.857 30 40 50
