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You are offered a chance to buy an asset for $8,000 that is expected to produce...

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Finance

You are offered a chance to buy an asset for $8,000 that isexpected to produce cash flows of $750 at the end of Year 1, $1,000at the end of Year 2, $850 at the end of Year 3, and $6,250 at theend of Year 4. What rate of return would you earn if you boughtthis asset?

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3.7 Ratings (692 Votes)

Ans 3.01%

Year Project Cash Flows (i) DF@ 2% (ii) PV of Project A ( (i) * (ii) ) DF@ 10% (iii) PV of Project A ( (i) * (iii) )
0 -8000 1                      (8,000.00) 1          (8,000.00)
1 750 0.980                           735.29 0.909               681.82
2 1000 0.961                           961.17 0.826               826.45
3 850 0.942                           800.97 0.751               638.62
4 6250 0.924                       5,774.03 0.683            4,268.83
Total                           271.47          (1,584.28)
IRR = Ra + NPVa / (NPVa - NPVb) * (Rb - Ra)
2% + 271.47 / (271.47+1584.28)*8%
3.01%

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Transcribed Image Text

You are offered a chance to buy an asset for $8,000 that isexpected to produce cash flows of $750 at the end of Year 1, $1,000at the end of Year 2, $850 at the end of Year 3, and $6,250 at theend of Year 4. What rate of return would you earn if you boughtthis asset?

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