Gulf Coast Inc.is considering investing in a project that will cost $152,000 and have no salvage value at the end of its 5-year life. It is estimated that the project will generate annual cash inflows of $40,000 each year. The company has a hurdle or cutoff rate of return of 9%. Instructions A)Using the internal rate of return method calculate an approximate interest yield for the project. (use tables from Appendix D) B)Should this project be accepted by Humana Inc.and why ? SHOW WORK WHERE NEEDED Solution (A) Calculation of Interest yield :- Cost of Project:- $1,52,000 Life of project :- 5 years Salvage value: - 0 Depreciation = $1, 52,000/5 = 30,400 per annum ROI :-9.00% Year   Cash Inflow    PV Factor ( 9%)    PV Factor (12%)     PV (9%)           PV (12%) 1-5       $40000          3.89                            3.60                       1,55,600            1,44,000 Cost of Project                                                                             1,52,000            152,000 Net Present Value                                                                        3,600                - 8,000 IRR :- (NPV Method) = 2 nd ROI - (cost of project – 2 nd PV)* (2 nd ROI- 1 st ROI) / (2 nd PV- 1 st PV) = 12%-{(1,52,000- 1,44,000)*3}/(1,55,600 – 1,44,000) =12%- {(24,000}/11,600) = 12%- 2.068% = 9.932% (B) YES PROJECT IS ACCEPTED, BECAUSE ROI IS NEAR BY 9.932 I.E 9.00% .

1. Gulf Coast Inc.is considering investing in a project that will cost $152,000 and have no salvage
value at the end of its 5-year life. It is estimated that the project will generate annual cash inflows
of $40,000 each year. The company has a hurdle or cutoff rate of return of 9%.
Instructions
A)Using the internal rate of return method calculate an approximate interest yield for the project.
(use tables from Appendix D)
B)Should this project be accepted by Humana Inc.and why ?
SHOW WORK WHERE NEEDED
Solution
(A) Calculation of Interest yield :-
Cost of Project:- $1,52,000
Life of project :- 5 years
Salvage value: - 0
Depreciation = $1, 52,000/5 = 30,400 per annum
ROI :-9.00%
Year Cash Inflow PV Factor ( 9%) PV Factor (12%) PV (9%) PV (12%)
1-5 $40000 3.89 3.60 1,55,600 1,44,000
Cost of Project 1,52,000 152,000
Net Present Value 3,600 - 8,000
IRR :- (NPV Method)

2. = 2 nd ROI - (cost of project – 2 nd PV)* (2 nd ROI- 1 st ROI) / (2 nd PV- 1 st PV)
= 12%-{(1,52,000- 1,44,000)*3}/(1,55,600 – 1,44,000)
=12%- {(24,000}/11,600)
= 12%- 2.068%
= 9.932%
(B) YES PROJECT IS ACCEPTED, BECAUSE ROI IS NEAR BY 9.932 I.E 9.00%