Question

Jackson Music is considering investing $ 625,000 in private lesson studios that will have no residual value. The studios are expected to result in annual net cash inflows of $ 100,000 per year for the next nine years. Assume that Jackson Music uses a 12​% hurdle rate. What is the approximate internal rate of return​ (IRR) of the studio​ investment?

Answer 1

Answer:

for the 6.25 lies in between 8% and 10%  

Explanation:

Given data:

investing amount $625,000

inflow cash $100,000

Rate 12%

Internal rate of return factor is given as

Internal rate of return factor (IRR)

$(IRR) = \frac{investment}{inflow\ cash}$

$IRR = \frac{625,000}{100,000} = 6.25$

Now determine factor 6.25 in PVA of $ 1 table for N = 9 years

For 8 % factor is 6.247

For 10 % factor is 5.759

So for the 6.25 lies in between 8% and 10%