Page 310 - BA2 Integrated Workbook STUDENT 2018

Fundamentals of Management Accounting

14.2 IRR = 5.4%

H = 10%

L = 5%

N H = $(173,500)

N L = $15,150

N L
IRR = L + ––––––––––× (H – L)
N L – N H

15,150
IRR = 5 + ––––––––––––––– × (10 – 5)
15,150 – (173,500)

= 5.4%

Note: The IRR could also have been estimated using the proportional method
or plotting the points on a graph and reading off the graph.

14.3 B

The 10 payments will be made from years 0 through to year 9.

From the cumulative present value table, the 9 year, 8% annuity factor is 6.247.
This gives us years 1 through to 9.

As the first payment is due now, we have to add in the discount factor for year
0, which is 1.

So the factor = (1 + 6.247) = 7.247

Present value = $1,000 × 7.247 = $7,247

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