Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed


Net present value, internal rate of return, sensitivity analysis



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13.15 Net present value, internal rate of return, sensitivity analysis.
(20–30 min)
1a
The table for the present value of annuities (Appendix B, Table 4) shows
16 periods at 14% = 3.889 Net present value = €40,000 (3.889) − €120,000
=
€155,560
− €120,000 = €35,560
b
Internal rate of return
€120,000
= Present value of annuity of €40,000 at
X
% for 6 years or what factor (F) in the table of present values of an annuity (Appendix B, Table 4) will satisfy the following equation.
€120,000
=
€40,000F
F
=
€120, 000
€40, 000
= 3.0 On the year line in the table for the present value of annuities (Appendix B, Table
4), find the column closest to 3.0; 3.0 is between a rate of return of 24% and 26%.


Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012 Interpolation is necessary

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