Net Present Value Method and Internal Rate of Return Method for a service company
Keystone Healthcare Corp. is proposing to spend $139,360 on a six-year project that has estimated net cash flows of $32,000 for each of the six years.
a. Compute the net present value, using a rate of return of 12%. Use the table of present value of an annuity of $1 presented above. If required, round to the nearest dollar. Use the minus sign to indicate a negative net present value.
Present value of annual net cash flows $fill in the blank 1
Less amount to be invested $fill in the blank 2
Net present value $fill in the blank 3
b. Based on the analysis prepared in part (a), is the rate of return (1) more than 12%, (2) 12%, or (3) less than 12%?
c. Determine the internal rate of return by computing a present value factor for an annuity of $1 and using the table of the present value of an annuity of $1 presented above.
fill in the blank 5 %