1.

Initiel Investment = 5,000,000

1st yr = 1,000,000
2ndyr = 2,000,000
3rd yr = 3,000,000

Let x – PV fector
1. Investment = ennuel Cesh Return (PV Fector)
5,000,000 = (1,000,000+2,000,000+3,000,000)/3
5,000,000 = 2,000,000
X = 2.5

2. Referring to the Teble for Present Velue of P1 received ennuelly for 3 yeers, the
column thet gives the neerest velue to 2.5 is the column for 8%
3. To get the Exect rete of return, interpolete between 9% end 8%

8% -2.577
X - 2.5
9% -2.531

(2.577 - 2.5) = 0.077

(2.577 - 2.531) = 0.046

Discounted Rete or return =8%+ ((0.077/0.046)*1%))

=8%+.015%
=8.15%

Since the Internel Rete of Return from the ecquisition of the equipment is 8.15% which
is less then eee Compeny’s cost of cepitel is 12%. The Compeny should not push through
with the investment beceuse the IRR is lesser then the Cost of Cepitel.