Question 1184491: A man has an investment of 13,760.00 in cash for equipment. His estimates of the year receipts and disbursements for all purposes are shown below.
Year Receipts Disbursement
0 0.00 13, 760.00
1 5, 000.00 1, 000.00
2 6, 200.00 1, 200.00
3 7, 500.00 1, 500.00
4 8, 800.00 1, 800.00
He estimates that his equipment has a salvage value of P 2,000.00 at the end of its useful life. Find the rate of return of the investment.
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! the rate of return, also called internal rate of return, or modified rate of return, or IRR in excel, or IROR in other documents, is the rate at which the net present value of the cash flows is equal to 0.
the results of my analyis are shown below.
there are 3 scenarios.
the first scenario assumes the salvage value is already included in the receipts.
the second scenario assumes the salvage value is added to the receipts at the end of year 4.
the third scenario assumes the salvage value is added to the receipts at the end of year 5.
i included the first scenario because:
"His estimates of the year receipts and disbursements for all purposes are shown below."
this led me to believe, that, perhaps, the salvage value was included as part ofthe receipts at the end of year 4.
the second scenario adds the salvage value at the end of year 4.
the third scenario adds the salvage value at the end of year 5.
the solution depends on the assumptions you were given to solve this problem.
when you provide your answer, be sure to include your assumptions, since that affects the answer.
here's my excel analysis.
npv at ror means npv at the rate of return of the project.
here's a reference.
https://www.investopedia.com/terms/i/irr.asp
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