2-2 3 4 14 Given 5 a. 6 Initial investment $ 4,000,000.00 7 Annual Cash Flo 500,000.00 8 Project Life 10 9 10 Solution: 11 IRR 12 13 Given 15 16 b. Year Cash Flow 17 18 500 000 19 1500 000 20 500,000.00 21 500 000.00 22 300 000.00 500,000.00 24 500.000,00 25 500.000 26 500,000.00 27 500.000,00 28 500 000 500 000 29 30 000.00 31 32 Solution: 33 34 IRR = 35 36 23 2-2 Calculating the internal rate of return Singular Construction is evaluating whether to build a new distribution facility. The proposed investment will cost Singular $4 million to construct and provide cash savings of $500,000 per year over the next ten years. a. What rate of return does the investment offer? b. If Singular were to invest another $200,000 in the facility at the end of five years, it would extend the life of the project by four years, during which time it would continue receiving cash savings of $500,000. What is the internal rate of return for this investment? Show Formulas