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eBook Question Content Area Net Present Value Method and Internal Rate of Return Method Wisconsin...

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Accounting

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Net Present Value Method and Internal Rate of Return Method

Wisconsin Healthcare Corp. is proposing to spend $189,788 on a project that has estimated net cash flows of $34,000 for each of the next seven years.

Present Value of an Annuity of $1 at Compound Interest
Year 6% 10% 12% 15% 20%
1 0.943 0.909 0.893 0.870 0.833
2 1.833 1.736 1.690 1.626 1.528
3 2.673 2.487 2.402 2.283 2.106
4 3.465 3.170 3.037 2.855 2.589
5 4.212 3.791 3.605 3.353 2.991
6 4.917 4.355 4.111 3.785 3.326
7 5.582 4.868 4.564 4.160 3.605
8 6.210 5.335 4.968 4.487 3.837
9 6.802 5.759 5.328 4.772 4.031
10 7.360 6.145 5.650 5.019 4.192

a. Compute the net present value, using a rate of return of 10%. Use the table of present values of an annuity of $1 presented above. If required, use the minus sign to indicate a negative net present value.

Present value of annual net cash flows $fill in the blank 1
Amount to be invested fill in the blank 2
Net present value $fill in the blank 3

b. Based on the analysis prepared in part (a), is the rate of return (1) more than 10%, (2) 10%, or (3) less than 10%?

more than 10%less than 10%equal to 10%

c. Determine the internal rate of return by computing a present value factor for an annuity of $1 and using the table of the present value of an annuity of $1 presented above. In your calculation, round the net present value factor to three decimal places. fill in the blank 5 %

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