Question
Part 5: Required information Excel Analytics 14-1 (Algo) Internal Rate of Return [LO14-2, LO14-3] Stauffer Company has an opportunity to manufacture and sell a new
Part 5:
Required information
Excel Analytics 14-1 (Algo) Internal Rate of Return [LO14-2, LO14-3]
Stauffer Company has an opportunity to manufacture and sell a new product for a five-year period. The company estimated the following costs and revenues for the new product:
Cost of new equipment | $ | 420,000 | |
Initial working capital required | $ | 120,000 | |
Overhaul of the equipment after three years | $ | 50,000 | |
Salvage value of the equipment after five years | $ | 30,000 | |
Annual revenues and costs:
Sales | $ | 850,000 | |
Variable expenses | $ | 500,000 | |
Fixed out-of-pocket operating costs | $ | 194,000 | |
When the project concludes in five years the working capital will be released for investment elsewhere in the company.
Excel Analytics 14-1 (Algo) Part 1
Required:
1. One method for computing the internal rate of return relies on computing the factor of the internal rate of return as shown below:
Factor of the internal rate of return | = | Investment required |
Annual net cash inflow |
Can this equation be used to calculate the internal rate of return for Stauffer Company? Why?
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