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DSC1630 Assignment 4 Semester 1 2022 Questions and Answers

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  • January 24, 2022
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DSC1630

Introductory Financial Mathematics

Department of Decision Sciences

Assignment 04 for Semester 01 2022

Unique assignment number: 632596
Due Date: 26 April 2022




Question 1

Questions 1, 2 and 3 are based on the following situation:

An investment with an initial outlay of R500 000 generates five successive annual cash
inflows of R75 000, R190 000, R40 000, R150 000 and R180 000 respectively. The cost of
capital K is 10% per annum.

Question 1

The internal rate of return (IRR) is

[1] 7,78%.
[2] 21,3%.
[3] 27,0%.
[4] 9,48%.

Answer:

Asked is to determine the IRR for five successive annual cash inflows. Thus using the formula
for the IRR we can write that

, 75 000 190 000 40 000 150 000 180 000
𝑓(𝑅) = + 2
+ 3
+ + − 500 000
1+𝑅 (1 + 𝑅) (1 + 𝑅) (1 + 𝑅)4 (1 + 𝑅)5

And determine 𝑅 when 𝑓(𝑅) = 0.

Using your calculator we determine that 𝑅 is equal to 7,78%:

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