Respond to your classmates answering these two questions.

• What suggestions do you have for the problem they had an issue with? Can you explain it to them?
• Perhaps you had issues with the same problem? What helped you?

the classmate post

In this Problem set discussion, I will explain about how to find IRR and B/ C ratio. Here are the Calculations:

1.To determine the internal rate of return (IRR) for this investment, We can use the formula for the present value of an annuity with growth:

PV = C1 / (r - g) * (1 - ((1 + g) / (1 + r))^n)

Where:

PV = Present Value

C1 = Initial payment ($1,200)

r = Discount rate (cost of capital, 14%)

g = Growth rate (3%)

n = Number of periods (6 years)

Plugging in the values:

PV = 1,200 / (0.14 - 0.03) * (1 - ((1 + 0.03) / (1 + 0.14))^6)

PV = 1,200 / 0.11 * (1 - (1.03 / 1.14)^6)

PV = 1,200 / 0.11 * (1 - 0.570844)

PV = 10,909.09

Now, to find the IRR, we need to solve for r in the following equation:

10,909.09 = 5,000 - (1,200 / (r - 0.03) * (1 - ((1 + 0.03) / (1 + r))^6))

We can use numerical methods or financial calculators to solve for r. After using any one the methods mentioned above, the IRR is approximately 13.82%.

1. To calculate the benefit-cost (B/C) ratio, We need to compare the present value of the benefits to the present value of the costs over the life of the project. Here is the way to calculate B/ C ratio using spreadsheet ,

Disbenefit costs250000B/C ratioAnnual equivalent benefits/ Annual equivalent costsAnnual equivalent costs15000000*(A/P,5%, 30)+150000 1156500Annual equivalent Benefits 900000-250000 650000B/C ratio=650000/1156500B/C ratio0.56

The B/C ratio is 0.56.

Explanation :

From the above 2 problems I answered all correctly. But in common I found difficulty in calculating and arriving sums after formula application. It quite challenging to do the problem with difficult calculations part. Can you suggest me any easy methods or shortcut to calculate the numbers?.. I thought that I cleared the sums with explanation clearly and this will helpful to you all to solve your doubts regarding this sums.