Answer:
The value of total liabilities is $155.031 million and option c is the correct answer.
Explanation:
The basic accounting equation states that the total value of assets is always equal to the sum of the total value of liabilities and the total value of equity.
Thus, we can say that,
Total Assets = Total Liabilities + Total Equity
The equity part can contain various components. In the given question it has two components namely Common Stock and retained earnings.
205.498 = Total Liabilities + (6.350 + 44.117)
205.498 = Total Liabilities + 50.467
205.498 - 50.467 = Total Liabilities
Total Liabilities = $155.031
The problem with average-cost pricing regulation is that once it is in place, there is a tendency for the:________
a. ATC curve to shift upward.
b. MR curve to shift leftward.
c. D curve to shift leftward.
d. ATC curve to shift downward.
e. D curve to shift rightward.
Answer:
a. ATC curve to shift upward
Explanation:
Average cost pricing is a form of pricing that appears as one of the ways in which the government operates a monopoly market. The government, however, may utilize average cost pricing as a tool to oversee prices monopolists may charge.
In other words, this implies that Monopolists always incline to produce less than the optimal amount boosting the prices up.
Hence, the problem with average-cost pricing regulation is that once it is in place, there is a tendency for the: "Average Total Cost curve to shift upward." This can be a result of an increase in output and reduction price
Erosion costs. Fat Tire Bicycle Company currently sells bicycles per year. The current bike is a standard balloon-tire bike selling for $, with a production and shipping cost of $. The company is thinking of introducing an off-road bike with a projected selling price of $ and a production and shipping cost of $. The projected annual sales for the off-road bike are . The company will lose sales in fat-tire bikes of units per year if it introduces the new bike, however. What is the erosion cost from the new bike? Should Fat Tire start producing the off-road bike? What is the erosion cost from the new bike?
Answer:
A. $1,725,000
B. Yes
Explanation:
Calculation for the erosion cost from the new bike
First step to find the erosion cost
Using this formula
Erosion cost =(Sales-Production and shipping cost )*Loss of sales units per year
Let plug in the formula
Erosion cost=(100-40)*7,500
Erosion cost=60*7,500
Erosion cost= $450,000
Second step is to calculate for the Net annual Cash flow using this formula
Net annual cash flow= (Projected selling price-Production and shipping cost)*Projected annual sales-Erosion cost
Let plug in the formula
Net annual cash flow= (370-225)*15,000 - 450,000
Net annual cash flow =145*15,000-450,000
Net annual cash flow =2,175,000-450,000
Net annual cash flow=$1,725,000
B.Yes Fat Tire start producing the off-road bike
Because the net annual cash flow is positive
The following data were taken from the financial statements of Gates Inc. for the current fiscal year. Property, plant, and equipment (net) $971,600 Liabilities: Current liabilities $140,000 Note payable, 6%, due in 15 years 694,000 Total liabilities $834,000 Stockholders' equity: Preferred $4 stock, $100 par (no change during year) $834,000 Common stock, $10 par (no change during year) 834,000 Retained earnings: Balance, beginning of year $890,000 Net income 386,000 $1,276,000 Preferred dividends $33,360 Common dividends 130,640 164,000 Balance, end of year 1,112,000 Total stockholders' equity $2,780,000 Sales $21,141,000 Interest expense $41,640 Assuming that total assets were $3,433,000 at the beginning of the current fiscal year, determine the following. When required, round to one decimal place.
Answer:
Ratio of fixed assets to long-term liabilities = fixed assets / long term liabilities = $971,600 / $694,000 = 1.4
Ratio of liabilities to stockholders' equity = total liabilities / stockholders' equity = $834,000 / $2,780,000 = 0.3
Asset turnover = net sales / average total assets = $21,141,000 / [($3,614,000 + $3,433,000)/2] = 6
Return on total assets = (net income + interest expense) / average total assets = ($386,000 + $41,640) / [($3,614,000 + $3,433,000)/2] = 12.14%
Return on stockholders’ equity = net income / average stockholders' equity = $386,000 / [($2,780,000 + $2,558,000) = 14.46%
Return on common stockholders' equity = net income / average common stockholders' equity = $386,000 / [($1,946,000 + $1,724,000) = 21.04%
Chester's balance sheet has $105,038,000 in equity. Further, the company is expecting net income of 3,000,000 next year, and also expecting to issue $4,000,000 in new stock. If there are no dividends paid what will beChester's book value?
Answer:
$112,038,000
Explanation:
The book value is computed as shown below:
= Equity balance + net income + issue of new stock
= $105,038,000 + $3,000,000 + $4,000,000
= $112,038,000
the price of envelopes was $3 a box, and Julie was willing to buy 10 boxes. Today, the price has gone up to $3.75 a box, and Julie is now willing to buy 8 boxes. Is Julie's demand for envelopes elastic or inelastic? What is Julie's elasticity of demand?
Answer:
Her elasticity of demand is the absolute value of -0.8, or 0.8. Julie's elasticity of demand is inelastic, since it is less than 1.
Explanation:
% Change in Quantity = (8 - 10)/(10) = -0.20 = -20%
% Change in Price = (3.75 - 3.00)/(3.00) = 0.25 = 25%
Elasticity = |(-20%)/(25%)| = |-0.8| = 0.8
2. Explain the following corporate/partnership documents and procedures for healthcare
organizations
Sole Proprietorship
Partnership
Corporation
Limited Liability Entities
On November 1, Alan Company signed a 120-day, 8% note payable, with a face value of $9,000. What is the maturity value of the note on March 1
Answer:
$9,236.71
Explanation:
The computation of the maturity value of the note is shown below:-
Interest Amount = ($9000 × 8%) × 120 ÷ 365
= $720 × 120 ÷ 365
= $236.71
So, the Maturity Value is
= Face value + Interest amount
= $9,000 + $236.71
= $9,236.71
Therefore for computing the maturity value we simply applied the above formula.
"A customer has an existing short margin account with credits of $16,000 and a short position in ABC stock worth $10,000. The SMA in the account is $1,000. If the market value of ABC falls to $9,000, the equity is:"
Answer:
Equity= $7,000
Explanation:
A customer has an existing short margin account that contains credit of $16,000
The short position in ABC stock is worth $10,000
The SMA in the account is $1,000
Therefore, if the market value of ABC falls down to $9,000 then, the equity can be calculated as follows
Equity= $16,000-$9,000
=$7,000
Hence the equity is $7,000
Each extra worker produces an extra unit of output up to six workers. After six, no additional output is produced. Draw the total product of labor, average product of labor, and marginal product of labor curves.
Answer:
attached is the diagram
Explanation:
Each extra worker produces an extra unit of output, is said to be the marginal production of an extra worker employed
marginal production :
change in total production / change in labor = ΔTp / ΔL
Average production = Tp / L
Tp = total production , L = number of labor
To draw the Total product of labor , average product labor and marginal product labor curves starting from zero labor
0 worker : Total product = 0, average product labor = 0 , marginal = 0
1 worker : Total product = 1, average product = 1 , marginal = 0
2 worker : Total product = 2, average product = 1, marginal = 1
3 workers: total product = 3 average product = 1, marginal = 1
4 workers: Total product = 4, average product = 1, marginal = 1
5 workers : Total product = 5 average product = 1, marginal = 1
6 workers : total product = 6 average product = 1 , marginal = 1
7 workers : total product = 7 , average product = 0.85, marginal = 0
8 workers : total product = 8, average product = 0.75 marginal = 0
Sally Rubber Co. has an expected net operating profit after taxes, EBIT (1-T), of $1,700 million in the coming year. In addition, the firm is expected to have net capital expenditures of $255 million, and net operating working capital (NOWC) is expected to increase by $45 million. How much free cash flow (FCF) is Sally Rubber Co. expected to generate over the next year?
Answer:
$1,400 million
Explanation:
Calculation for free cash flow (FCF)
Using this formula
Free cash flow= Net income+ Non cash expenses-Net capital expenditures- Increase in Net operating working capital
Let plug in the formula
Free cash flow=$1,700 million + $0 million -$255 million -$45 million
Free cash flow =$1,400 million
Therefore the amount of free cash flow (FCF) that Sally Rubber Co. expected to generate over the next year will be $1,400 million
Which of the following statements is true of the new product development process? Question 8 options: 1) Commercialization is the process of inviting broad communities of people such as customers, employees, and scientists into the new product innovation process. 2) The purpose of the idea screening stage is to create a large number of ideas. 3) The concept testing stage is the stage at which the product and its proposed marketing program are introduced into realistic market settings. 4) Under the business analysis stage, if the new product satisfies the company's objectives, the product then moves to the product development stage. 5) A product concept is the way consumers perceive an actual or potential product.
Answer: 4) Under the business analysis stage, if the new product satisfies the company's objectives, the product then moves to the product development stage.
Explanation:
The Business Analysis stage of the New Product Development Process is a more in-depth analysis of the product to find out the viability of the product in the market and what it means for the firm.
Here the big questions are asked such as;
The Cost of the product to produceIf adequate profit will be generatedProjected market demandExisting competitors etcOnce these questions have been answered and other analysis made and the company is satisfied, the product can then move to the Product Development Stage.
It is true that under the business analysis stage, if a new product satisfies the company's objectives, it moves to the product development stage.
In a New Product Development Process, the Business Analysis stage entails in-depth analysis of the product to find out the viability of the product in the market and what it means for the firm.
The questions asked in the Business Analysis stage includes:
The Cost of the product to produce If adequate profit will be generated Projected market demand Existing competitorsIn conclusion, it is true that under the business analysis stage, if a new product satisfies the company's objectives, it moves to the product development stage.
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The following data relate to factory overhead cost for the production of 10,000 computers: Actual: Variable factory overhead $262,000 Fixed factory overhead 90,000 Standard: 14,000 hrs. at $25 350,000 If productive capacity of 100% was 15,000 hours and the total factory overhead cost budgeted at the level of 14,000 standard hours was $356,000, determine the variable factory overhead controllable variance, fixed factory overhead volume variance, and total factory overhead cost variance. The fixed factory overhead rate was $6.00 per hour. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.
Answer:
Calculation of variable overhead controllable variance
Standard hours allowed for 10,000 computers = 14,000 hours
Budgeted variable expense = Standard hours allowed * variable overhead rate
= 14,000 * ($25 - $6)
= $266,000
Variable overhead controllable variance = Actual variable overhead expense - Budgeted variable overhead expense
= $262,000 - $266,000
=$4,000 (Unfavorable)
Calculation of fixed overhead volume variance:
Applied overhead = Number of computers produced * Fixed overhead rate
= 10,000 * $6.00
= $60,000
Budgeted fixed overhead = $90,000
Fixed overhead volume variance = Budgeted fixed overhead - Applied fixed overhead
= $90,000 - $60,000
= $30,000 (Favorable)
Calculation of Total factory overhead volume variance:
Total factory overhead cost variance = Variable overhead controllable variance + Fixed overhead volume variance
= - $4,000 + $30,000
= $26,000 (Favorable)
If the current interest rate is 5% and your semi-annual coupon paying bond has a duration of 5.33 years, how much will the price of the bond change if the interest rate increases by 1 basis point?
Answer:
Percentage change in price = -5.33 * 0.00005
Explanation:
Percentage change in price = - modified duration * (Change in yield in BP/100)
Percentage change in price = -5.33 * ((0.01/2)/100)
Percentage change in price = -5.33 * (0.005/100)
Percentage change in price = -5.33 * 0.00005
the construction of a 1000 suit luxury hotel requires the installation of 12 outlets and 6 light fictures per suit . The companys standard productivity for a two electrician crew is 20 minutes per light fixture and 30 minutes per outlet. Using eighteen crews working at a 0.8 efficiency factor and a 10hr work day with a half an hour lunch break , the duration of this construction activity (days,hours) is most nearly how much
Answer:
Hours = 8000
Days = 46.78
Explanation:
The duration of this construction activity can be calculated as follows
DATA
No. of suits = 1000
Outlets to be installed = 12/suit
Standard productivity for outlet = 30mins
Fixtures to be installed = 6/suit
Standard productivity light fixture = 20mins
Working hours per day = 10 hours - 0.5 lunch break
Working hours per day = 9.5 hours
No. of crews = 18
Solution
Total time to fix = No.of suits x no. of installations x Standard time
Total time to fix = (1000 x 12 x 30mins ) + ( 1000 x 6 x 20mins)
Total time to fix = 480000 mins
Total time to fix = 480000/60mins = 8000 hours
Duration in days = Total time / (hrs per day x mo. of crews)
Duration in days = 8000 hours / (9.5 x 18)
Duration in days = 8000/171
Duration in days = 46.78 days
Link Co. purchased machinery that cost $3,000,000 on January 4, 2016. The entire cost was recorded as an expense. The machinery has a nine-year life and a $200,000 residual value. The error was discovered on December 20, 2018. Ignore income tax considerations. Before the correction was made, and before the books were closed on December 31, 2018, retained earnings was understated by:_________.a. $3,000,000.
b. $2,066,667.
c. $2,377,778
d. $2,333,333.
Answer:
c. $2,377,778
Explanation:
Recording the entire cost as expense would have understated Retained Earnings by $3,000,000
Annual Depreciation on machine = Purchase cost - Residual value / Useful life
= ($3,000,000 - $200,000) / 9
= $311,111
Depreciation would have been recorded for $622222 for 2 years had machinery been correctly recorded ($311,111 * 2) = $622,222
On December 20, 2018, the net understatement of Retained Earnings = $3,000,000 - $622,222
= $2,377,778
All of the following securities can be sold by both an individual holding a Series 7 General Securities License and an individual holding a Series 6 Investment Companies / Variable Annuities registered representative's license EXCEPT:
a. Unit Investment Trusts
b. Mutual Funds
c. Initial Public Offerings of
d. losed End Funds
e. Real Estate Investment Trusts
Answer:
e. Real Estate Investment Trusts
Explanation:
An individual that holds Series 6 Investment Companies / Variable Annuities initially is allowed only to sell mutilate bonds, initial public entry of closed end bonds of which which these cannot be traded by the person unless series 7 is passed generally that is unit investment trust and variable annuities. to sell securities like real estate investment trust, the broader or wider Series 7 General Securities License is needed.
Real estate investment trust (REITs) usually gives or issue shares of beneficial interest which trade like other stocks, either on stock exchanges or over-the-counter. These securities are not redeemable.
In response to the new employee end-of-shift policy Brianna proposes that Ollie pay its employees on their breaks instead of making them clock out. Brianna is most likely utilize the ________ influence tactic
Answer: exchange
Explanation: Brianna is most likely to use the exchange influence tactic which is given as a tactic that suggests that making express or implied promises and trading favors. This is observed when she proposes that Ollie pay its employees on their breaks instead of making them clock out in response to the new employee end-of-shift policy. The tactics is especially useful for influencing peers and surbodinates.
George Hansen is General Manager for the Marigold Inn in Augusta, Georgia. Sharon Coombs is Restaurant and Food Services manager for the Inn. She reports to George. Two years ago, Sharon noticed a decline in room service business, the highest margin potion of her operation. This decline coincided with an increase in the national sales of pizza delivery and carryout firms as well as an increase in the number of empty pizza boxes from these firms being left in guest rooms in the Inn. Her immediate response was to install a pizza oven in the kitchen and offer room service pizza to guests. The effort met with modest success, though it was well below her expectations. Questionnaires completed by departing guests revealed a problem of product quality.
Focusing on this problem, Sharon improved the Inn’s pizza until blind tests judged it at least equal in quality to the products of the two major pizza delivery competitors in Augusta. Sales did not improve, convincing Sharon that the problem was a perceived mismatch between the hotel’s image and guests’ expectations of pizza makers. Guests simply did not seem to believe that the traditional steak and seafood restaurant at the Inn could make a high-quality, authentic pizza.
Based on this conclusion, Sharon presented the following proposal to George:
"Sales of room service pizza are stagnant due to guests’ misperception that our product is lower in quality than that of competitors. This misperception is based on the belief that until we disassociate our pizza from the Marigold Inn name. Therefore, to capture more room service pizza business, we should create a ‘Napoli Pizza’ image for our guest room delivery service by:
Preparing ‘Napoli Pizza’ brochures for each guest room, complete with a phone number with a prefix different from that of Marigold Inn. The number will reach a special phone in room service, which will be answered, ‘Napoli Pizza, authentic Italian pizza from old, family recipes.’
Using special ‘Napoli Pizza’ boxes for delivering room service pizza to guests.
Issuing ‘Napoli Pizza’ hats and jackets to room service personnel for use in pizza delivery. Room service waiters and waitresses will wear these garments to deliver pizza. They will change to their regular uniforms for other deliveries.
Answer:
Correct Answer:
1. Preparing ‘Napoli Pizza’ brochures for each guest room, complete with a phone number with a prefix different from that of Marigold Inn. The number will reach a special phone in room service, which will be answered,
Explanation:
This is the best logical suggestion to George because, the guests already had the impression that, the inn cannot be able to produce a very high quality and tasty pizza. Preparing "Napoli Pizza" with different information from the Inn is best alternative. the guest would believe that, the pizza is coming from another quality pizza making company.
Exercise 10-2 Straight-Line: Amortization of bond discount LO P2 Tano issues bonds with a par value of $180,000 on January 1, 2017. The bonds' annual contract rate is 8%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years. The annual market rate at the date of issuance is 10%, and the bonds are sold for $170,862. 1. What is the amount of the discount on these bonds at issuance
Answer:
bonds' face value $180,000
coupon rate 8%, semiannual = 4%
maturity 3 years x 2 = 6 periods
market interest rate = 10% or 5% semiannual
the journal entry to record the issuance of the bonds:
January 1, 2017, bonds issued at a discount
Dr Cash 170,862
Dr Discount on bonds payable 9,138
Cr Bonds payable 180,000
the amortization of the bond discount should be $9,138 / 6 = $1,523 on every coupon payment.
Journal entry to record payment of first coupon:
June 30, 2017, first coupon payment
Dr Interest expense 8,723
Cr Cash 7,200
Cr Discount on bonds payable 1,523
You, a real-estate developer, own a piece of land in Nassau, Bahamas, next to an equal-size piece of land owned by a competitor. Both of you have the choice of building a casino or a hotel. Your payoffs in millions of dollars are as follows:You
Your Competitor Casino Hotel Casino 3,3 20,5Hotel 5,20 2,2How much is it worth to you to get your casino building permit first?a. $2 millionb. $3 millionc. $15 milliond. $17 million
Answer: c. $15 million
Explanation:
If you get your casino building first, your competitor will have to get the Hotel so as to make $5 million which is more than the $3 million if they were to choose a casino as well.
The Payoff for you would therefore be $20 million and for them $5 million.
The Net Payoff over your competitor would be = 20 - 5
= $15 million
Lopez Plastics Co. (LPC) issued callable bonds on January 1, 2021. LPC's accountant has projected the following amortization schedule from issuance until maturity:
Date Cash Effective Decrease in Outstanding
interest interest balance balance
1/1/2021 $207,020
6/30/2021 $7,000 $6,211 $789 206,230
12/31/2021 7,000 6,187 813 205,417
6/30/2022 7,000 6,163 837 204,580
12/31/2022 7,000 6,137 863 203,717
6/30/2023 7,000 6,112 888 202,829
12/31/2023 7,000 6,085 915 201,913
6/30/2024 7,000 6,057 943 200,971
12/31/2024 7,000 6,029 971 200,000
What is the annual stated interest rate on the bonds?
a. 3.5%
b. 6%
c. 7%
d. none of the above
Answer:
c. 7%
Explanation:
According to the given scenario, the computation of the annual stated interest rate on the bonds is shown below:-
Sated interest Rate = Cash interest ÷ Face Value of the bond × 2
= $7,000÷ $200,000 × 2
= 7%
Therefore for computing the annual stated interest rate on the bonds we simply applied the above formula. hence the correct option is c
1. In the Black-Scholes option pricing model, N(d1) is the probability that a standard normal random variable takes on a value exceeding d1.
A. True
B. False
2. In the Black-Scholes option-pricing model, if volatility increases, the value of a call option will increase but the value of the put option will decrease.
A. True
B. False
Harris Co. takes a full year's depreciation expense in the year of an asset's acquisition and no depreciation expense in the year of disposition. Data relating to one of Harris's depreciable assets at December 31, 2015 are as follows: Acquisition year 2013 Cost $210,000 Residual value 30,000 Accumulated depreciation 144,000 Estimated useful life 5 years Using the same depreciation method as used in 2013, 2014, and 2015, how much depreciation expense should Harris record in 2016 for this asset? a. $24,000b. $36,000c. $42,000d. $48,000
Answer:
A.24,000
Explanation:
Depreciation expense for the year 2016 can be calculated as follows
DATA
Acquisition year = 2013
Cost = $210,000
Residual value = 30,000
Accumulated depreciation = 144,000
Estimated useful life = 5 years
Remaining useful life = 5 + 4 + 3 + 2 + 1 = 15
Solution
Year Cost Remaining life Depreciation fraction Depreciation exp
1 180,000 5 5/15 $60,000
2 180,000 4 4/15 $48,000
3 180,000 3 3/15 $36,000
4 180,000 2 2/15 $24,000
5 180,0000 1 1/15 $12,000
Harris Co. should record $24,000 in 2016 for this asset
Haruto Kawa, a Japanese citizen who works for Shin-Ro Corp. in Japan, has been asked to head the company's sales office in the United States. Upon taking the assignment, Haruto will be a(n) _____ manager.
Answer:
The correct answer will be "Expatriate".
Explanation:
An expatriate seems to be a migrant worker through his or her occupation, a specialist, or maybe even a skilled worker. Expatriate managers could've been characterized because of those who aren’t residents including its country during which individuals work, and were employed because of everyone's specialized operational skills but rather because of about there willingness to employ organization knowledge.Last year Harrington Inc. had sales of $325,000 and a net income of $19,000, and its year-end assets were $250,000. The firm's total-debt-to-total-capital ratio was 15.0%. The firm finances using only debt and common equity and its total assets equal total invested capital. Based on the DuPont equation, what was the ROE
Answer:
8.94%
Explanation:
Firstly, we will need to find total equity and total debt of Harrington Inc inorder to apply the Dupont equation for getting ROE
Harrington's total debt = 15.00 % × $250,000
= $37,500
Harrington's total equity will be; applying accounting equation
Asset = Liabilities + Owner's equity
Owner's equity = Assets - Liabilities
= $250,000 - $37,500
= $212,500
Therefore, using the Dupont equation, we can calculate the ROE as;
(NI/Sales) × (Sales/Total assets) × (Total assets/Total common equity)
= 19,000/325,000 × 325,000 /250,000 × 250,000/212,500
= 8.94%
What is the standard deviation of a portfolio's returns if the mean return is 15%, and the variance of returns is 184
Answer:
Standard deviation =13.6
Explanation:
Standard deviation is measure of the total risks of an investment. It measures the volatility in return of an investment as a result of both systematic and non-systematic risks.
Non-systematic risk includes risk that are unique to a company like poor management, legal suit against the company .
Standard deviation is the sum of the squared deviation of the individual return from the mean return under different scenarios .
Further more, it can be calculated as the square root of the variance of the portfolio.
Standard deviation = √ variance
DATA
Variance = 184
Standard deviation = √184 = 13.6
Standard deviation =13.6
Morgan Company issues 10%, 20-year bonds with a par value of $760,000 that pay interest semiannually. The amount paid to the bondholders for each semiannual interest payment is.
Answer: $38,000
Explanation:
The company is supposed to pay bondholders an Interest of 10% per year according to the terms of the terms of the bond.
= 10% * 760,000
= $76,000
However, payments are to be made semi-annually which will be;
= 76,000 * 1/2
= $38,000
of a portfolio. The beta of four stocksG, H, I, and Jare , , , and , respectively. What is the beta of a portfolio with the following weights in each asset: LOADING...? What is the beta of portfolio 1?
Answer: 1.02
Explanation:
The Portfolio Beta will be the weighted average of the betas of the individual stocks in Portfolio 1.
Portfolio Beta = (weight in G * beta of G) + (weight in H * beta of H) + (weight in I * beta of I) + (weight in J * beta of J)
= (0.25 * 0.45) + ( 0.25 * 0.82) + ( 0.25 * 1.14) + ( 0.25 * 1.66)
= 0.1125 + 0.205 + 0.285 + 0.415
= 1.0175
= 1.02
In marketing his wooden pens and pencils to specialty-shop customers. What marketing straregy Roben was using and why?
Answer:
concentrated marketing
What is the internal rate of return of a project costing $3,000; having after-tax cash flows of $1,500 in each of the two years of its two-year life; and a salvage value of $800at the end of the second year in addition to the $1,500 cash flow
Answer:
Internal rate of return = 16.3%
Explanation:
The IRR is the discount rate that equates the present value of cash inflows to that of cash outflows. At the IRR, the Net Present Value (NPV) of a project is equal to zero
If the IRR greater than the required rate of return , we accept the project for implementation
If the IRR is less than that the required rate , we reject the project for implementation
IRR = a% + ( NPVa/(NPVa + NPVb)× (b-a)%
Step 1 : Calculate NPVa at 10%
NPV = PV of cash inflow - Initial cost
PV of cash inflow = 1500× ( 1- 1.1^(-2))/0.1=2,603.31
PV of salvage value = 800× 1.1^(-2) =661.16
NPV = 2,603.31 + 6,661.16 - 3000= 264.46
Step 2 :Calculate NPVb at 20%
PV of cash inflow = 1500× ( 1- 1.2^(-2))/0.2=2291.67
PV of salvage value = 800× 1.2^(-2) =555.56
NPV =2291.67 + 555.56 - 3,000 = -152.78
Step 3 : Calculate IRR
IRR = 10% + (264.46/(264.46+152.78))× (20-10)%= 16.3%
Internal rate of return = 16.3%
