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Social Science Clinic => Business => Topic started by: HCHenry on Jun 7, 2019

Title: The introduction of a new product requires an immediate outlay of $145 000 and has a residual value ...
Post by: HCHenry on Jun 7, 2019

The introduction of a new product requires an immediate outlay of $145 000 and has a residual value of $30 000 after 10 years. The anticipated net returns from the marketing of the product are expected to be $25 500 per year for ten years. What is the rate of return on the investment (correct to the nearest tenth of a percent)?
a) Use linear interpolation to find the approximate value of the rate of return.
b) Find the answer using Cash Flow and IRR.

Title: The introduction of a new product requires an immediate outlay of $145 000 and has a residual value ...
Post by: miss.ashley on Jun 7, 2019

PVOUT = 145 000 - 30 000^-10;
PVIN = 25 500
NPV = PVIN - PVOUT
Index = × 100%; Increase/Decrease in Rate = /4 rounded
Calculations below show the attempts in approximating the ROI

Attempts	i = 16%	i = 10%	i = 14%	i = 12%
PVOUT	138 199	133 434	136 908	135 341
PVIN	123 247	156 686	133 011	144 081
NPV	-14 952	23 2534	-38973897	8740
Index	89	117	97	106
Inc/Decr Rate	-3	4	-1	2
​	ROI < 16%	ROI > 10%	ROI < 14%	ROI > 12%

Hence, 12% < ROI < 14%. Use linear approximation to find the approximate value of ROI.
d = = 1.38%
The rate of return, correct to the nearest tenth of a percent, is 13.4%

b)	CF0 = 145 000 ±

C01 = 25 500

F01 = 9

C02 = 55 500

F02 = 1

Compute IRR = 13.353832 = 13.4%

Title: The introduction of a new product requires an immediate outlay of $145 000 and has a residual value ...
Post by: HCHenry on Jun 7, 2019

Thanks

Title: The introduction of a new product requires an immediate outlay of $145 000 and has a residual value ...
Post by: miss.ashley on Jun 7, 2019

Welcome :)

Title: Re: The introduction of a new product requires an immediate outlay of $145 000 and has a residual va
Post by: Arshikh Khan on Aug 10, 2020

Thank You

Title: Re: The introduction of a new product requires an immediate outlay of $145 000 and has a residual va
Post by: Anup Atha on Aug 10, 2020

Thank you

Title: Re: The introduction of a new product requires an immediate outlay of $145 000 and has a residual va
Post by: Mithu Atha on Aug 10, 2020

thank you