ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Question
Chapter 7A, Problem 15P
To determine
The calculation of Interest rate.
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What is the definition of internal rate of return (IRR)? If you expect the annual interest rates are much different in the next 10 years, would the IRR be the ideal measure? Why or why not?
1. XYZ company planned that $500,000 be spent on software and hardware to improve the
efficiency of the database systems. This is expected to save $10,000 per year for 10 years in
energy costs and $700,000 at the end of 10 years in equipment costs.
a) Write the required equation for finding the rate of return by using factors. (You are not
expected to find the rate of return value)
b) Calculate the rate of return by using Excel.
The common stock of XYZ paid $1.32 in dividends last year. Dividends are expected to grow at an 8% annual rate for an indefinite number of years. If the require rate of return is 10.5%, should you make this investment? Why?
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- Suppose you inherited $6,000 from your father's brother. You would like to take a trip to Australia and estimated the cost of that to be $13,000. If you could invest the money at a 6.9% rate of return, how long would you have to wait to go to Australia?arrow_forwardA publisher is deciding whether or not to invest in a new printer. The printer would cost $900, and would increase the cash flows in year 1 by $500 and in year 3 by $800. Cash flows do not change in year 2. If the interest rate is 12% If the interest rate rises to 25% would the investment still take place?arrow_forwardECONOMICS UPVOTE WILL BE GIVEN. PLEASE WRITE THE SOLUTIONS LEGIBLY. NO LONG EXPLANATION NEEDED. Shala Co. is making a decision about investing in new technology. It currently expects to earn Php 100,000,000 in its lifetime. If it invests in brand-new equipment today, its expected earnings will permanently increase by 5% per day. What is the expected value of investing in the new equipment?arrow_forward
- John Doe received the following information in a mailed advertisement: “You could borrow $4,250 for just $176.71 per month for 36 months at 28.4% APR. Get the money you need at a payment you can afford.” Would you take this borrowing opportunity? If not, what is the difficulty with it? What is the effective interest rate being charged to the borrower?arrow_forwardAssume a penny is struck in a mint in 1795 is sold for $375,000 in 2018. What is the rate of return? Only round 2 decimals in final answer.arrow_forwardSuppose an initial investment of $100 will remain $50/year fo r three years (assume the $50 is received each year at the end of the year). Is this a profitable investment?arrow_forward
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